1 EXHIBIT 2.1
AGREEMENT OF MERGER
BY AND AMONG
SUNRISE ASSISTED LIVING, INC.,
BUCKEYE MERGER CORPORATION,
AND
KARRINGTON HEALTH, INC.
DATED AS OF OCTOBER 18, 1998
TABLE OF CONTENTS
PAGE
ARTICLE I........................................................................................2
1.1 The Merger........................................................................2
1.2 Closing...........................................................................2
1.3 Effective Time....................................................................2
1.4 Effects of Merger.................................................................2
1.5 Articles of Incorporation and Bylaws..............................................3
1.6 Directors and Officers............................................................3
ARTICLE II.......................................................................................3
2.1 Share Consideration; Conversion or Cancellation of Shares in the Merger...........3
2.2 Payment for Shares in the Merger..................................................4
2.3 Exchange Agent....................................................................6
2.4 Fractional Shares.................................................................7
2.5 Further Assurances................................................................8
ARTICLE III......................................................................................8
3.1 Organization......................................................................9
3.2 Capitalization...................................................................10
3.3 No Adjustment Under Notes........................................................11
3.4 Options or Other Rights..........................................................11
3.5 Authority Relative to this Agreement.............................................11
3.6 Acquiror Common Stock............................................................12
3.7 No Violation.....................................................................12
3.8 Compliance with Laws.............................................................13
3.9 Fraud and Abuse Matters..........................................................14
3.10 Medicare/Medicaid Participation.................................................15
3.11 Litigation......................................................................16
3.12 Financial Statements and Reports................................................17
3.13 Absence of Certain Changes or Events............................................18
3.14 Employee Benefit Plans and Employment Matters...................................18
3.15 Labor Matters...................................................................20
3.16 Insurance.......................................................................20
3.17 Environmental Matters...........................................................20
3.18 Tax Matters.....................................................................21
3.19 Intellectual Property...........................................................22
3.20 No Default......................................................................23
3.21 Title to Properties; Encumbrances...............................................23
3.22 Brokers.........................................................................24
3.23 Opinion of Financial Advisor....................................................24
3.24 Company Stock Ownership.........................................................24
3.25 Voting Requirements.............................................................24
3.26 Books and Records...............................................................24
3.27 Disclosure......................................................................24
-i-
ARTICLE IV......................................................................................25
4.1 Organization.....................................................................25
4.2 Capitalization...................................................................26
4.3 Options or Other Rights..........................................................27
4.4 Authority Relative to this Agreement.............................................27
4.5 No Violation.....................................................................28
4.6 Compliance with Laws.............................................................29
4.7 Fraud and Abuse Matters..........................................................30
4.8 Medicare/Medicaid Participation..................................................31
4.9 Litigation.......................................................................32
4.10 Financial Statements and Reports................................................33
4.11 Absence of Certain Changes or Events............................................34
4.12 Employee Benefit Plans and Employment Matters...................................35
4.13 Labor Matters...................................................................36
4.14 Insurance.......................................................................36
4.15 Environmental Matters...........................................................37
4.16 Tax Matters.....................................................................38
4.17 Intellectual Property...........................................................39
4.18 Related Party Transactions......................................................39
4.19 No Undisclosed Material Liabilities.............................................39
4.20 No Default......................................................................40
4.21 Title to Properties; Encumbrances...............................................40
4.22 Brokers.........................................................................41
4.23 Opinion of Financial Advisor....................................................41
4.24 Acquiror Stock Ownership........................................................41
4.25 Voting Requirements.............................................................41
4.26 State Takeover Statutes.........................................................41
4.27 Requested Information; Material Contracts.......................................42
4.28 Receivables.....................................................................42
4.29 Books and Records...............................................................42
4.30 No Excess Parachute Payments....................................................42
4.31 Change of Control Provisions....................................................43
4.32 Franchise Activities............................................................43
4.33 Disclosure......................................................................43
ARTICLE V.......................................................................................44
5.1 Proxy Statement/Prospectus; Registration Statement; Stockholders' Meeting........44
5.2 Conduct of the Business of the Company Prior to the Effective Time...............46
5.3 Conduct of the Business of Acquiror Prior to the Effective Time..................49
5.4 Access to Properties and Records.................................................50
5.5 No Solicitation of Transactions..................................................51
5.6 Compliance by Merger Sub; Conduct of Business by Merger Sub......................52
5.7 Treatment of Options.............................................................52
5.8 Indemnification; Directors' and Officers' Liability..............................53
5.9 Confidentiality..................................................................54
5.10 Best Efforts....................................................................54
5.11 Certification of Stockholder Vote...............................................55
5.12 Affiliate Agreements............................................................55
5.13 Listing Application.............................................................56
5.14 Supplemental Disclosure Schedules...............................................56
5.15 No Action.......................................................................56
5.16 Advice of Changes...............................................................56
5.17 Option and Shareholder Agreements...............................................56
-ii-
5.18 Plan of Reorganization..........................................................56
5.19 Possible Acquiror Loan..........................................................57
5.20 Election of JMAC, Inc. Designee.................................................57
5.21 Employee Benefits...............................................................57
ARTICLE VI......................................................................................58
6.1 Conditions to Each Party's Obligation to Effect the Merger.......................58
6.2 Additional Conditions to the Obligations of the Company..........................59
6.3 Conditions to the Obligations of Acquiror and Merger Sub to Effect the Merger....60
ARTICLE VII.....................................................................................62
7.1 Termination......................................................................62
7.2 Effects of Termination...........................................................63
7.3 Procedure for Termination........................................................64
ARTICLE VIII....................................................................................64
8.1 Amendment........................................................................64
8.2 Waiver...........................................................................64
8.3 Survival.........................................................................64
8.4 Expenses and Fees................................................................64
8.5 Notices..........................................................................65
8.6 Interpretation...................................................................66
8.7 Mutual Drafting..................................................................66
8.8 Public Announcements.............................................................66
8.9 Certain Definitions..............................................................67
8.10 Entire Agreement................................................................69
8.11 Assignment; Parties in Interest.................................................69
8.12 Counterparts....................................................................69
8.13 Invalidity; Severability........................................................69
8.14 Enforcement; Consent to Jurisdiction............................................70
8.15 Governing Law...................................................................70
-iii-
EXHIBITS
Exhibit A Form of Option Agreement
Exhibit B Form of Shareholder Agreement
Exhibit C Form of Company Affiliate Agreement
Exhibit D Intentionally Omitted
Exhibit E-1 Form of Hogan & Hartson L.L.P. Opinion Letter
Exhibit E-2 Form of Dinsmore & Shohl Opinion Letter
Exhibit E-3 Form of Wachtell, Lipton, Rosen & Katz Opinion Letter
Exhibit E-4 Form of Bricker & Eckler LLP Opinion Letter
ANNEXES
Annex A Commitment Letter for Acquiror Loan
SCHEDULES
Schedule 1.6(a) Directors of Surviving Corporation
Schedule 1.6(b) Officers of Surviving Corporation
-iv-
AGREEMENT OF MERGER
AGREEMENT OF MERGER ("Agreement") dated as of October 18, 1998 by and
among SUNRISE ASSISTED LIVING, INC., a Delaware corporation (referred to herein
as "Acquiror"), BUCKEYE MERGER CORPORATION, an Ohio corporation and a wholly
owned subsidiary of Acquiror (referred to herein as "Merger Sub"), and
Karrington Health, Inc., an Ohio corporation (referred to herein as the
"Company").
WHEREAS, Merger Sub, upon the terms and subject to the conditions of this
Agreement and in accordance with the Ohio General Corporation Law (the "OGCL")
will merge with and into the Company (the "Merger") (the Company, following the
effectiveness of the Merger, being hereinafter sometimes referred to as the
"Surviving Corporation");
WHEREAS, the Board of Directors of the Company has (i) determined that
the Merger is fair and in the best interests of the Company's shareholders, (ii)
approved and adopted this Agreement and the transactions contemplated hereby,
and (iii) recommended approval and adoption of the Agreement by the shareholders
of the Company;
WHEREAS, the Board of Directors of Acquiror has determined that the
Merger is in the best interests of Acquiror and its stockholders and the Boards
of Directors of Acquiror and Merger Sub have approved and adopted the Agreement;
WHEREAS, concurrently with the execution and delivery of this Agreement,
as a condition of Acquiror's willingness to enter into this Agreement, the
Company is entering into an Option Agreement dated the date hereof and attached
as Exhibit A hereto (the "Option Agreement") pursuant to which the Company is
granting to Acquiror an option to purchase shares of the common stock, without
par value, of the Company (the "Company Common Stock");
WHEREAS, as a condition to Acquiror's and Merger Sub's willingness to
enter into this Agreement, concurrently herewith certain shareholders and each
of the directors and officers of the Company are entering into shareholder
agreements with Acquiror dated the date hereof and attached as Exhibit B hereto
(the "Shareholder Agreements"), pursuant to which, among other things, each such
shareholder, officer and director (in such director's and officer's capacity as
a shareholder) agrees to vote in favor of this Agreement and the Merger and
against any competing proposals;
WHEREAS, it is the intention of Acquiror and the Company to negotiate
definitive documentation for the provision of the Acquiror Loan (as defined
herein) under the circumstances and terms set forth herein;
WHEREAS, Acquiror and the Company desire to make certain representations,
warranties and agreements in connection with the Merger and also to prescribe
various conditions to the Merger; and
WHEREAS, for Federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants, agreements and conditions contained herein, and in order
to set forth the terms and conditions of the Merger and the method of carrying
the same into effect, the parties hereby agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions hereinafter
set forth, and in accordance with the OGCL, at the Effective Time (as defined in
Section 1.3), Merger Sub shall be merged with and into the Company. As a result
of the Merger, the separate corporate existence of Merger Sub shall cease and
the Company, as the Surviving Corporation, shall continue to exist under and be
governed by the OGCL. The name of the Surviving Corporation shall be Karrington
Health, Inc., unless and until otherwise changed in accordance with the OGCL.
1.2 Closing. Subject to the terms and conditions of this Agreement, the
closing of the Merger (the "Closing") shall take place at 10:00 a.m.,
Washington, D.C. time, at the offices of Hogan & Hartson L.L.P., 555 Thirteenth
Street, N.W., Washington, D.C. 20004, as promptly as practicable (but in no
event later than the second business day) after satisfaction or waiver, if
permissible, of the conditions set forth in Article VI, or at such other
location, time or date as may be agreed to in writing by the parties hereto. The
date on which the Closing occurs is hereinafter referred to as the "Closing
Date."
1.3 Effective Time. If all the conditions to the Merger set forth in
Article VI shall have been satisfied or, if permissible, waived in accordance
herewith and this Agreement shall not have been terminated as provided in
Article VII, the parties hereto shall cause the Merger to be consummated by
filing, on or as soon as practicable following the Closing Date, a certificate
of merger meeting the requirements of the OGCL ("Certificate of Merger") with
the Secretary of State of the State of Ohio in such form as required by, and
executed in accordance with such requirements of, the OGCL. The Merger shall
become effective at the time of filing of the Certificate of Merger with the
Secretary of State of the State of Ohio in accordance with the OGCL or at such
other time which the parties hereto shall have agreed upon and designated in
such filing as the effective time of the Merger (the "Effective Time").
1.4 Effects of Merger. At the Effective Time, the Merger shall have the
effects set forth in Section 1701.82 and other applicable provisions of the
OGCL. As of the Effective Time, Acquiror shall own directly all of the
outstanding equity securities of the Surviving Corporation.
-2-
1.5 Articles of Incorporation and Bylaws. At the Effective Time, the
Articles of Incorporation and the Bylaws of Merger Sub shall be the Articles of
Incorporation and Bylaws of the Surviving Corporation, in each case until
thereafter changed or amended as provided therein or in accordance with
applicable Law.
1.6 Directors and Officers. The persons set forth on Schedule 1.6(a)
hereto shall, after the Effective Time, serve as the directors of the Surviving
Corporation, to serve until their successors have been duly elected and
qualified in accordance with the Articles of Incorporation and Bylaws of the
Surviving Corporation. The persons set forth on Schedule 1.6(b) hereto shall,
after the Effective Time, serve as the officers of the Surviving Corporation at
the pleasure of the Board of Directors of the Surviving Corporation in the
office(s) set forth on said Schedule 1.6(b).
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
2.1 Share Consideration; Conversion or Cancellation of Shares in the
Merger. Subject to the provisions of this Article II, at the Effective Time, by
virtue of the Merger and without any action on the part of Merger Sub, the
Company or the holders of any of the following securities:
(a) Each issued and outstanding share of Company Common Stock
(other than shares of Company Common Stock to be canceled in
accordance with Section 2.1(d)) shall be automatically converted into
the right to receive (i) a number of shares of Acquiror Common Stock
equal to the lesser of (A) 0.3939; or (B) the number obtained by
dividing $13.00 by the Average Trading Price of Acquiror Common Stock
(as defined below) but in no event less than 0.3333 (the "Exchange
Ratio"), plus (ii) the associated right to purchase shares of Series C
Junior Participating Preferred Stock of Acquiror pursuant to that
certain Rights Agreement dated as of April 25, 1996 between Acquiror
and First Union National Bank of North Carolina, as amended (the
"Rights Agreement"). For purposes of the preceding sentence, the
Average Trading Price of Acquiror Common Stock shall be equal to the
average of the closing price of a share of Acquiror Common Stock as
quoted on Nasdaq National Market for the ten (10) day trading period
ending three trading days prior to the date of the Company
Shareholders' Meeting. If, between the date of this Agreement and the
Effective Time, Acquiror or the Company should split, subdivide,
reclassify, recapitalize, combine or exchange their respective Common
Stock, or pay a stock dividend or other stock distribution in their
respective Common Stock, or otherwise change their respective Common
Stock into a different number of shares, a different class or a
different type of security, or make any other dividend or distribution
on their respective Common Stock, then the Exchange Ratio will be
appropriately adjusted to reflect such split, subdivision,
reclassification, recapitalization, combination, exchange, dividend or
other distribution or change. The Exchange Ratio shall be rounded, in
each case, to the nearest ten-thousandth of a share.
-3-
(b) All of the issued and outstanding shares of the Company Common
Stock converted into Acquiror Common Stock pursuant to Section 2.1(a)
(the "Company Shares") shall cease to be outstanding, shall
automatically be canceled and retired and shall cease to exist, and
each certificate representing any such shares shall thereafter only
represent the right to receive for each of such shares, upon the
surrender of such certificate by the holder thereof in accordance with
Section 2.2(b), the amount of the Acquiror Common Stock specified
above (the "Share Consideration") and cash in lieu of fractional
shares of Acquiror Common Stock as contemplated by Section 2.4. The
holders of such certificates previously evidencing such shares of
Company Common Stock immediately prior to the Effective Time shall
cease to have any rights with respect to such shares of Company Common
Stock except as otherwise provided herein.
(c) The issued and outstanding shares of the common stock, $.01 par
value, of Merger Sub (the "Merger Sub Common Stock"), shall be
converted into one hundred (100) shares of newly and validly issued,
fully paid and nonassessable shares of common stock, without par
value, of the Surviving Corporation ("Surviving Corporation Common
Stock"), so that at and immediately following the Effective Time only
such newly issued Surviving Corporation Common Stock will constitute
all of the issued and outstanding capital stock of the Surviving
Corporation.
(d) All shares of Company Common Stock that are owned by the
Company, Acquiror or any direct or indirect wholly owned subsidiary of
Acquiror or of the Company immediately prior to the Effective Time
shall automatically be canceled and retired and cease to exist,
without any conversion thereof or payment with respect thereto, and no
Acquiror Common Stock or other consideration shall be delivered in
exchange therefor.
(e) Each outstanding option to purchase Company Common Stock
(each, a "Company Stock Option") shall be assumed by Acquiror in the
manner provided in Section 5.7.
2.2 Payment for Shares in the Merger.
(a) As of the Effective Time, Acquiror shall enter into an
agreement with a bank or trust company selected by Acquiror and
reasonably acceptable to the Company as exchange agent for the Company
Shares in accordance with this Article II (the "Exchange Agent"),
which shall provide that Acquiror shall deposit, or shall cause to be
deposited, with the Exchange Agent, for the benefit of those persons
who immediately prior to the Effective Time were the holders of
Company Shares, a sufficient number of certificates representing
shares of Acquiror Common Stock required to effect the delivery of the
aggregate Share Consideration required to be issued pursuant to
Section 2.1 (the certificates representing Acquiror Common Stock
comprising such aggregate Share Consideration, together with any
dividends or distributions with respect thereto with a record date
after the Effective Time, being hereinafter referred to as the
"Exchange Fund"). The Exchange Agent shall, pursuant to irrevocable
instructions from Acquiror, deliver the shares of Acquiror Common
Stock contemplated to be
-4-
issued pursuant to Section 2.1 and, unless otherwise directed by the
Acquiror in accordance with Section 2.4(b), effect the sales provided
for in Section 2.4(a) out of the Exchange Fund. The Exchange Fund
shall not be used for any other purpose.
(b) As soon as reasonably practicable after the Effective Time,
Acquiror shall cause the Exchange Agent to mail to each holder of
record of a certificate or certificates which immediately prior to the
Effective Time evidenced outstanding Company Shares (the
"Certificates"), (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon proper delivery of the Certificates
to the Exchange Agent and shall be in such form and have such other
provisions as Acquiror may reasonably specify) and (ii) instructions
for use in effecting the surrender of the Certificates in exchange for
certificates evidencing the Share Consideration and cash in lieu of
fractional shares, if any. Upon the surrender of a Certificate for
cancellation to the Exchange Agent, together with such letter of
transmittal duly completed and properly executed in accordance with
instructions thereto and such other customary documents as may be
reasonably required pursuant to such instructions, the holder of such
Certificate shall be entitled to receive in exchange therefor (X)
certificates evidencing the number of shares of Acquiror Common Stock
that such holder has the right to receive pursuant to Section 2.1(a),
rounded down to the nearest whole share (after taking into account all
shares of Company Common Stock then held by such holder under all such
Certificates so surrendered), (Y) cash in lieu of fractional shares of
Acquiror Common Stock to which such holder is entitled pursuant to
Section 2.4 herein and (Z) any dividends or other distributions to
which such holder is entitled pursuant to Section 2.2(c) herein, the
dividends, distributions and cash described in clauses (Y) and (Z)
being collectively referred to as the "Other Amounts", and the
surrendered Certificate shall forthwith be canceled. Until so
surrendered and exchanged, the Certificates shall represent solely the
right to receive the Share Consideration and the Other Amounts,
subject to any required withholding of taxes. If Share Consideration
for any Company Shares is to be issued to a person other than the
person in whose name the Certificates for such surrendered shares are
registered, it shall be a condition of the exchange that the person
requesting such exchange shall pay to the Exchange Agent any transfer
or other taxes required by reason of the issuance or delivery of such
Share Consideration to a person other than the registered holder of
the Certificates surrendered or shall establish to the satisfaction of
Acquiror that such tax has been paid or is not applicable. Unless
prohibited by law, former stockholders of record of the Company as of
the Effective Time shall be entitled to vote, after the Effective
Time, at any meeting of Acquiror stockholders, the number of whole
shares of Acquiror Common Stock into which their respective Company
Shares are converted, regardless of whether such holders have
exchanged their Certificates in accordance with this Section 2.2.
(c) No dividends or other distributions with respect to Acquiror
Common Stock with a record date after the Effective Time shall be paid
to the holders of any unsurrendered Certificate with respect to the
shares of Acquiror Common Stock represented thereby, and no part of
the Share Consideration or Other Amounts shall be paid to any such
holder, until the surrender of such Certificate in accordance with
this Section 2.2. Subject to the effect of applicable laws, following
surrender of any such Certificate, there shall be paid by Acquiror or
the Exchange Agent to the holder of the certificates evidencing whole
shares of
-5-
Acquiror Common Stock issued in exchange therefor, in addition to the
Share Consideration to be issued in exchange therefor, without
interest, (i) at the time of such surrender, the amount of any cash
payable in lieu of a fractional share of Acquiror Common Stock to
which such holder is entitled pursuant to Section 2.4 and the amount
of dividends or other distributions, with a record date after the
Effective Time theretofore paid with respect to such Share
Consideration, and (ii) at the appropriate payment date, the amount of
dividends or other distributions, with a record date after the
Effective Time but prior to such surrender and with a payment date
subsequent to such surrender, payable with respect to such Share
Consideration.
(d) All shares of Acquiror Common Stock issued and all cash paid
upon the surrender for exchange of the shares of Company Common Stock
in accordance with the terms hereof (including any cash paid pursuant
to Sections 2.2(c) or 2.4) shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of Company Common
Stock, subject, however, to the Surviving Corporation's obligation to
pay any dividends or make any other distributions with a record date
prior to the Effective Time which may have been declared or made by
the Company on such shares of Company Common Stock in accordance with
the terms of this Agreement or prior to the date of this Agreement and
which have been disclosed to Acquiror on the Company Disclosure
Schedule and which remain unpaid at the Effective Time, and there
shall be no further registration of transfers on the stock transfer
books of the Surviving Corporation of the shares of Company Common
Stock which were outstanding immediately prior to the Effective Time.
If, after the Effective Time, Certificates are presented to the
Surviving Corporation, Acquiror or the Exchange Agent for any reason,
they shall be canceled and exchanged as provided in this Article II.
(e) In the event any Certificates shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if
required by Acquiror, the posting by such person of a bond in such
amount, form and with such surety as Acquiror may reasonably direct as
indemnity against any claim that may be made against it with respect
to such Certificate, the Exchange Agent will issue in exchange for
such lost, stolen or destroyed Certificate the number of shares of the
Acquiror Common Stock and cash in lieu of fractional shares
deliverable (and unpaid dividends and distributions) in respect
thereof pursuant to this Agreement.
(f) Acquiror, as the sole stockholder of Merger Sub, shall, upon
surrender to the Surviving Corporation of certificates representing
the Merger Sub Common Stock, receive a certificate representing the
number of shares of the Surviving Corporation Common Stock into which
such Merger Sub Common Stock shall have been converted pursuant to
Section 2.1.
(g) Certificates surrendered for exchange by any person
constituting a Company Affiliate (as defined in Section 5.12) shall
not be exchanged for certificates representing Acquiror Common Stock
until Acquiror has received a written agreement from such person as
provided in Section 5.12.
2.3 Exchange Agent. Acquiror shall cause the Exchange Agent to agree,
among other things, that (i) the Exchange Agent shall maintain the Exchange Fund
as a separate fund to
-6-
be held for the benefit of the holders of the Company Shares, which shall be
promptly applied by the Exchange Agent to making the payments provided for in
Section 2.2, (ii) any portion of the Exchange Fund that has not been paid to
holders of the Company Shares pursuant to Section 2.2 prior to that date which
is six months from the Effective Time shall be delivered to Acquiror, and any
holders of Company Shares who shall not have theretofore complied with Section
2.2 shall thereafter look only to Acquiror for the Share Consideration and Other
Amounts; (iii) the Exchange Fund shall not be used for any purpose that is not
provided for herein, and (iv) all expenses of the Exchange Agent shall be paid
directly by Acquiror. Promptly following the date which is six months from the
Effective Time, the Exchange Agent shall return to Acquiror all cash, securities
and any other instruments in its possession relating to the transactions
described in this Agreement, and the Exchange Agent's duties shall terminate.
Thereafter, each holder of Certificates may surrender such Certificates to
Acquiror and (subject to applicable abandoned property, escheat and similar
laws) receive in exchange therefor the Share Consideration payable with respect
thereto, without interest, but shall have no greater rights against Acquiror
than may be accorded to general creditors of Acquiror under the OGCL. The
Exchange Agent shall not be entitled to vote or exercise any rights of ownership
with respect to the Acquiror Common Stock held by it from time to time
hereunder. None of Acquiror, Merger Sub, the Company, the Exchange Agent, nor
any of their respective officers, directors and employees shall be liable to any
holder of shares of Company Common Stock for any Share Consideration or Other
Amounts from the Exchange Fund delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law. The Exchange Agent shall
invest any cash included in the Exchange Fund, as directed by Acquiror, on a
daily basis. Any interest and other income resulting from such investments shall
be paid to Acquiror.
2.4 Fractional Shares.
(a) No certificates or scrip evidencing fractional shares of
Acquiror Common Stock shall be issued upon the surrender for exchange
of Certificates, and any such fractional share interests will not
entitle the owner thereof to vote or to any rights of a stockholder of
Acquiror. In lieu of any such fractional shares, each holder of
Company Shares who would otherwise have been entitled to a fractional
share of Acquiror Common Stock upon surrender of Certificates for
exchange pursuant to this Article II will be paid an amount in cash
(without interest), rounded to the nearest cent, equal to such
holder's proportionate interest in the Fractional Securities Fund (as
defined below) or as otherwise provided in Section 2.4(b). As promptly
as practicable following the Effective Time, the Exchange Agent shall
determine the excess of (i) the number of whole shares of the Acquiror
Common Stock delivered to the Exchange Agent by Acquiror pursuant to
Section 2.2(a) over (ii) the aggregate number of whole shares of the
Acquiror Common Stock to be distributed to holders of the Company
Shares pursuant to Section 2.2(b) (such excess being herein called the
"Excess Shares"), and the Exchange Agent, as agent for the holders of
Company Shares, unless otherwise directed by Acquiror pursuant to
Section 2.4(b), shall sell the Excess Shares at then prevailing prices
on The Nasdaq National Market ("Nasdaq"), all in the manner provided
in this Section 2.4(a). The sale of the Excess Shares by the Exchange
Agent shall be executed on Nasdaq and shall be executed in round lots
to the extent practicable. The Exchange Agent shall use reasonable
efforts to complete the sale of the Excess Shares as promptly
following the Effective Time as, in the
-7-
Exchange Agent's sole judgment, is practicable consistent with
obtaining the best execution of such sales in light of prevailing
market conditions. Acquiror shall pay all commissions, transfer taxes
and other out-of-pocket transaction costs, including the expenses and
compensation of the Exchange Agent, incurred in connection with such
sale of Excess Shares. Until the net proceeds of such sale or sales
have been distributed to the holders of Company Shares, the Exchange
Agent will hold such proceeds in trust for such holders of Company
Shares (the "Fractional Securities Fund").
(b) In lieu of establishing the Fractional Securities Fund
pursuant to Section 2.4(a), the Exchange Agent may, at the direction
of Acquiror prior to the Effective Time, pay any cash amounts due the
former stockholders of the Company directly from cash made available
to the Exchange Agent by Acquiror for such purpose, in which event,
each holder of Company Shares who would otherwise have been entitled
to receive a fraction of a share of Acquiror Common Stock (after
taking into account all Certificates delivered by such holder) shall
receive, in lieu thereof, cash (without interest) in an amount equal
to such fractional part of a share of Acquiror Common Stock multiplied
by the closing price of a share of Acquiror Common Stock on the
business day immediately preceding the Closing Date as reported on
Nasdaq.
(c) As soon as practicable after the determination of the amount of
cash to be paid to holders of Company Shares in lieu of any fractional
interests, the Exchange Agent shall make available in accordance with
this Agreement such amounts to such holders.
2.5 Further Assurances. If, at any time after the Effective Time, the
Surviving Corporation shall consider or be advised that any further deeds, bills
of sale, assignments, assurances in law or any other acts or things are
necessary, desirable or proper (a) to vest, perfect or confirm, of record or
otherwise, in the Surviving Corporation, the title to or interest in any
property or right of the Company or Merger Sub acquired or to be acquired by
reason of, or as a result of, the Merger, or (b) otherwise to carry out the
purposes of this Agreement, the Company and Merger Sub agree that the Surviving
Corporation and its proper officers and directors shall and will execute and
deliver all such deeds, bills of sale, assignments and assurances in law and do
all acts or things necessary, desirable or proper to vest, perfect or confirm
title to or interest in such property or right in the Surviving Corporation and
otherwise to carry out the purposes of this Agreement, and that the proper
officers and directors of the Surviving Corporation are fully authorized in the
name of the Company and Merger Sub or otherwise to take any and all such action.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND MERGER SUB
On or prior to the date hereof, Acquiror has delivered to the Company a
schedule (the "Acquiror Disclosure Schedule") setting forth, among other things,
items the disclosure of which is necessary or appropriate either (i) in response
to an express disclosure requirement contained in a provision hereof or (ii) as
an exception to one or more representations or warranties contained in Article
III or to one or more of its covenants contained in Article V;
-8-
provided that the mere inclusion of an item in the Acquiror Disclosure Schedule
as an exception to a representation or warranty shall not be deemed an admission
by the Acquiror that such item represents a material exception or fact, event or
circumstance or that such item is reasonably likely to result in a Material
Adverse Effect on Acquiror. Acquiror and Merger Sub, jointly and severally,
represent and warrant to the Company in each case, as of the date of this
Agreement that, except as set forth in the Acquiror Disclosure Schedule, which
shall identify exceptions by specific Section references:
3.1 Organization. Each of Acquiror, Merger Sub and Acquiror's
subsidiaries (the "Acquiror Subsidiaries") has been duly organized and is
validly existing and in good standing (with respect to jurisdictions which
recognize such concept) under the laws of the jurisdiction of its organization,
has all requisite power and authority to own, operate and lease its properties
and to carry on its business as it is now being conducted, and is qualified or
licensed to do business and is in good standing (with respect to jurisdictions
which recognize such concept) in each jurisdiction in which the nature of the
business conducted by it or the ownership or leasing of its properties makes
such qualification necessary, other than where the failure to be so qualified or
licensed, individually or in the aggregate, would not have a Material Adverse
Effect on Acquiror. The term "Material Adverse Effect on Acquiror" as used in
this Agreement shall mean any change or effect that, individually or when taken
together with all such other changes or effects, is or would reasonably be
expected to be materially adverse to the financial condition, results of
operations, properties or business of Acquiror and the Acquiror Subsidiaries
taken as a whole; provided, however, that Material Adverse Effect on Acquiror
shall not be deemed to include the impact of (i) changes in general economic
conditions or conditions applicable to the assisted living industry generally,
(ii) changes or effects which result from the execution and delivery of this
Agreement or the consummation of any transactions contemplated hereby, or (iii)
the events set forth in Section 3.1 of the Acquiror Disclosure Schedule. True
and complete copies of the Restated Certificate of Incorporation ("Acquiror
Restated Certificate of Incorporation") and the Amended and Restated Bylaws of
Acquiror (the "Acquiror Bylaws") have heretofore been delivered to the Company,
and such Acquiror Restated Certificate of Incorporation and Acquiror Bylaws are
in full force and effect. True and complete copies of the Articles of
Incorporation and the Code of Regulations of Merger Sub have heretofore been
delivered to the Company, and such Articles of Incorporation and Code of
Regulations are in full force and effect. Section 3.1 of the Acquiror Disclosure
Schedule contains a complete and accurate list of all of the Acquiror
Subsidiaries, a list of the jurisdictions where Acquiror and each of the
Acquiror Subsidiaries is duly qualified or licensed to do business as a foreign
organization and Acquiror's percentage ownership in each such Acquiror
Subsidiary. Neither Acquiror nor any Acquiror Subsidiary is in violation of any
provision of its articles or certificate of incorporation or bylaws (each as may
have been amended or restated) or other organizational documents, as the case
may be. Merger Sub was formed solely for the purpose of engaging in the
transactions contemplated by this Agreement. As of the date hereof and the
Effective Time, except for obligations or liabilities incurred in connection
with its incorporation or organization and the transactions contemplated by this
Agreement and except for this Agreement and any other agreements or arrangements
contemplated by this Agreement, Merger Sub has not and will not have incurred,
directly or indirectly, through any subsidiary or affiliate, any liabilities or
-9-
obligations or engaged in any business activities of any type or kind whatsoever
or entered into any agreements or arrangements with any person.
3.2 Capitalization. As of the date of this Agreement, the authorized
capital stock of Acquiror consists of (i) 60,000,000 shares of Common Stock, par
value $0.01 per share ("Acquiror Common Stock") and (ii) 10,000,000 shares of
preferred stock, $.01 par value ("Acquiror Preferred Stock"), of which 30,000
shares of the Acquiror Preferred Stock have been designated as "Series C Junior
Participating Preferred Stock." As of October 16, 1998, (i) 19,383,210 shares of
Acquiror Common Stock were issued and outstanding, all of which were duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights created by statute, the Acquiror Restated Certificate of
Incorporation or the Acquiror Bylaws or any agreement to which Acquiror is a
party or by which Acquiror is bound and (ii) no shares of Acquiror Common Stock
were held in the treasury of Acquiror. As of the date of this Agreement, no
shares of Acquiror Preferred Stock are issued and outstanding. Each of the
outstanding shares of capital stock of Acquiror were issued in compliance with
all applicable Federal and state laws concerning the issuance of securities. As
of the date of this Agreement, 4,667,678 shares of Acquiror Common Stock are
reserved for future issuance pursuant to employee stock options granted pursuant
to Acquiror's stock option plans described in Section 3.2 of the Acquiror
Disclosure Schedule (the "Acquiror Option Plans") and certain other option
arrangements (any stock option so issued being a "stock option"). In addition to
the foregoing, 4,033,613 shares of Acquiror Common Stock are reserved for
issuance upon conversion of Acquiror's $150,000,000 principal amount of
aggregate outstanding 5.5% Convertible Subordinated Notes Due 2002 (the
"Acquiror Notes"). As of the date of this Agreement, the authorized capital of
Merger Sub consists of 850 shares of common stock, without par value per share,
of which 100 shares are issued and outstanding and were duly authorized, validly
issued, fully paid and nonassessable and not subject to preemptive rights
created by statute, Merger Sub's Articles of Incorporation or Code of
Regulations or any agreement to which Merger Sub is a party or by which Merger
Sub is bound. Acquiror has heretofore delivered to the Company a correct and
complete copy of the Acquiror Option Plans. Except as set forth in this Section
3.2 or in Section 3.2 of the Acquiror Disclosure Schedule, there are no options,
warrants, puts, calls or other rights (including registration rights),
agreements, arrangements or commitments of any character to which Acquiror or
any Acquiror Subsidiary is a party or by which any of them is bound relating to
the issued or unissued capital stock of, or other equity interests in, Acquiror
or any Acquiror Subsidiary or obligating Acquiror or any Acquiror Subsidiary to
grant, issue, deliver or sell, or cause to be granted, issued, delivered or
sold, any shares of capital stock of, or other equity interests in, Acquiror or
any Acquiror Subsidiary, by sale, lease, license or otherwise. All shares of
Acquiror Common Stock subject to issuance as aforesaid, upon issuance on the
terms and conditions specified in the instruments pursuant to which they are
issuable, will be duly authorized, validly issued, fully paid and nonassessable
and will not have been issued in violation of or subject to any preemptive
rights created by statute, the Acquiror Restated Certificate of Incorporation or
Acquiror Bylaws or any agreement to which Acquiror is a party or by which
Acquiror is bound. Except as set forth in this Section 3.2, in Section 3.2 of
the Acquiror Disclosure Schedule, or in the Acquiror Current Reports (as defined
in Section 3.11), there are no outstanding contractual obligations, contingent
or otherwise, of Acquiror or any Acquiror Subsidiary to repurchase, redeem or
otherwise acquire any shares of
-10-
Acquiror Common Stock or any capital stock of, or other equity interests in, any
Acquiror Subsidiary. There are no agreements, arrangements or commitments of any
character (contingent or otherwise) pursuant to which any person is or may be
entitled to receive any of the revenues or earnings, or any payment based
thereon or calculated in accordance therewith, of Acquiror or any Acquiror
Subsidiary. Each outstanding share of capital stock of, or other equity interest
in, each Acquiror Subsidiary is duly authorized, validly issued, fully paid and
nonassessable and, except as set forth in Section 3.2 of the Acquiror Disclosure
Schedule, each such share or other equity interest owned by Acquiror or another
Acquiror Subsidiary is owned free and clear of all security interests, liens,
claims, charges, pledges, options, rights of first refusal, agreements,
conditions, restrictions, limitations on voting rights, charges, decrees,
judgments, and other encumbrances or imperfections of title of any nature
whatsoever ("Encumbrances"). Except for the capital stock of the Acquiror
Subsidiaries and except for the ownership interests set forth in Section 3.2 of
the Acquiror Disclosure Schedule, Acquiror does not own, directly or indirectly,
any capital stock or other ownership interest in, or any interest convertible
into or exchangeable or exercisable for capital stock of or other ownership
interest in, any person. Acquiror is not aware of any voting trust, stockholder
agreement or other similar arrangement relating to any shares of Acquiror Common
Stock.
3.3 No Adjustment Under Notes. No event has occurred or failed to occur
that has resulted in an adjustment to the original conversion price under the
Acquiror Notes.
3.4 Options or Other Rights. Except as disclosed in Section 3.2 herein or
in the Acquiror SEC Filings (as defined in Section 3.12), as of the date of this
Agreement, there is no outstanding right, subscription, warrant, call,
unsatisfied preemptive right, option or other agreement or arrangement of any
kind to purchase or otherwise to receive from Acquiror or any Acquiror
Subsidiary any of the outstanding authorized but unissued, unauthorized or
treasury shares of the capital stock or any other security of Acquiror or any
Acquiror Subsidiary, and there is no outstanding security of any kind
convertible into or exchangeable for such capital stock. Except as set forth in
Section 3.4 of the Acquiror Disclosure Schedule or the Acquiror SEC Filings,
there are no agreements or understandings among Acquiror or any Acquiror
Subsidiary on the one hand and any other person on the other hand concerning the
registration of any security of Acquiror or an Acquiror Subsidiary under the
Securities Act (as defined below).
3.5 Authority Relative to this Agreement.
(a) Acquiror has all requisite corporate power and authority to
execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby to be
consummated by Acquiror. The execution and delivery of this Agreement
by Acquiror and the consummation of the transactions contemplated on
its part hereby have been duly authorized by all necessary corporate
action, and no other corporate proceedings on the part of Acquiror are
necessary to authorize the execution and delivery of this Agreement by
Acquiror or the consummation of the transactions contemplated on its
part hereby. This Agreement has been duly executed and delivered by
Acquiror and, assuming the due authorization, execution and delivery
thereof by the Company, constitutes the legal, valid and
-11-
binding obligation of Acquiror, enforceable against Acquiror in accordance with
its terms, except to the extent that such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization or other laws affecting the
enforcement of creditors' rights generally or by general equity principles.
(b) Merger Sub has the requisite corporate power and authority to
execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby to be
consummated by it. The execution and delivery of this Agreement by
Merger Sub and the consummation by Merger Sub of the transactions
contemplated hereby have been duly authorized by all necessary
corporate action and no other corporate proceedings on the part of
Merger Sub are necessary to authorize this Agreement or to consummate
the transactions contemplated hereby. This Agreement has been duly
executed and delivered by Merger Sub and, assuming the due
authorization, execution and delivery thereof by the Company,
constitutes a legal, valid and binding obligation of Merger Sub,
enforceable against Merger Sub in accordance with its terms, except to
the extent that such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization or other laws affecting the
enforcement of creditors' rights generally or by general equity
principles.
3.6 Acquiror Common Stock. The shares of Acquiror Common Stock to be
issued in connection with the Merger have been duly authorized and, when issued
as contemplated hereby at the Effective Time, will be validly issued, fully paid
and non-assessable, and not subject to any preemptive rights created by statute,
Acquiror's Restated Certificate of Incorporation or Bylaws or any agreement to
which Acquiror is a party or by which Acquiror is bound and will be registered
under the Securities Act of 1933, as amended (the "Securities Act"), and
registered or exempt from registration under applicable state "blue sky" laws
and approved for listing on Nasdaq.
3.7 No Violation. Other than as listed on Section 3.7 to the Acquiror
Disclosure Schedule, the execution and delivery of this Agreement by each of
Acquiror and Merger Sub do not, the performance by Acquiror and Merger Sub of
their respective obligations hereunder will not, and the consummation by
Acquiror and Merger Sub of the transactions contemplated hereby to be performed
by each of them will not (i) violate or conflict with any provision of any Law
(as defined in Section 8.9(h)) in effect on the date of this Agreement and
applicable to Acquiror or any Acquiror Subsidiary or by which any of their
respective properties or assets is bound or subject, (ii) require Acquiror or
any Acquiror Subsidiary to obtain any consent, waiver, approval, license or
authorization or permit of, or make any filing with, or notification to, any
governmental, quasi-governmental or regulatory authority, domestic or foreign
("Governmental Entities"), based on Laws, rules, regulations and other
requirements of Governmental Entities in effect as of the date of this Agreement
(other than (a) the filing of a pre-merger notification report under The
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules
and regulations promulgated thereunder (the "HSR Act") and the expiration of the
applicable waiting period, (b) filings or authorizations required in connection
with or in compliance with the provisions of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), the Securities Act, the rules and
regulations of Nasdaq or the "takeover" or "blue sky" laws of various states,
(c) filing and recordation of appropriate merger documents as
-12-
required by the OGCL and (d) any other filings and approvals expressly
contemplated by this Agreement), (iii) require the consent, waiver, approval,
license or authorization of any person (other than Governmental Entities), (iv)
violate, conflict with, or result in a breach of or the acceleration of any
obligation under, or constitute a default (or an event which with notice or the
lapse of time or both would become a default) under, or give to others any right
of, or result in any, termination, amendment, acceleration or cancellation of,
or loss of any benefit or creation of a right of first refusal, or require any
payment under, or result in the creation of a lien or other encumbrance on any
of the properties or assets of Acquiror or any Acquiror Subsidiary pursuant to
or under any provision of any indenture, mortgage, note, bond, lien, lease,
license, agreement, franchise, contract, order, judgment, ordinance, Acquiror
Permit (as defined below) or other instrument or obligation to which Acquiror or
any Acquiror Subsidiary is a party or by which Acquiror or any Acquiror
Subsidiary or any of their respective properties is bound or subject to, or (v)
conflict with or violate the Certificate of Incorporation or Bylaws, or the
equivalent organizational documents, in each case as amended or restated, of
Acquiror or any of the Acquiror Subsidiaries, except for any such conflicts,
consents, waivers, approvals, licenses, filings or violations described in
clause (i) or breaches, defaults, events, rights of termination, amendment,
acceleration or cancellation, payment obligations or liens or encumbrances
described in clause (iv) that would not have a Material Adverse Effect on
Acquiror and except for such consents, waivers, approvals, licenses or
authorizations described in clauses (ii) or (iii) that individually or in the
aggregate would not be material to the Acquiror, and except where the failure to
obtain such consents, approvals, authorizations or permits, or to make such
filings or notifications would not, either individually or in the aggregate,
prevent Acquiror or Merger Sub from performing any of their respective
obligations under this Agreement and would not have a Material Adverse Effect on
Acquiror.
3.8 Compliance with Laws.
(a) As of the date of this Agreement, each of Acquiror and the
Acquiror Subsidiaries holds all licenses, certificates of need
("CONs"), franchises, grants, permits, easements, variances,
accreditations, exemptions, consents, certificates, identification
numbers, approvals, orders and other authorizations (collectively,
"Acquiror Permits") necessary to own, lease and operate its properties
and to carry on its business as it is now being conducted, are
certified as providers under all applicable Medicare and Medicaid
programs and the Federal Civilian Health and Medical Plan of the
Uniformed Services ("CHAMPUS") program to the extent required to be so
certified, and are in compliance with, and have performed in all
material respects all obligations under, all Acquiror Permits and all
Laws governing their respective businesses, including, without
limitation, the requirements, guidelines, rules and regulations of
Medicare, Medicaid, CHAMPUS, state approved Medicaid waiver programs
and other third-party reimbursement programs, except where the failure
to hold such Acquiror Permits or to so comply or perform, individually
or in the aggregate, would not have a Material Adverse Effect on
Acquiror. No Acquiror Permits will in any way be affected by, or
terminate or lapse by reason of, the transactions contemplated by this
Agreement.
-13-
(b) To Acquiror's knowledge, all health care personnel employed
by Acquiror or any Acquiror Subsidiary are properly licensed to the
extent required to perform the duties of their employment in each
jurisdiction where such duties are performed.
(c) Except as set forth in Section 3.8(c) of the Acquiror
Disclosure Schedule, no action or proceeding is pending or, to
Acquiror's knowledge, threatened that may result in the suspension,
revocation or termination of any Acquiror Permit, the issuance of any
cease-and-desist order, or the imposition of any administrative or
judicial sanction, and neither Acquiror nor any Acquiror Subsidiary
has received any notice from any governmental authority in respect of
the suspension, revocation or termination of any Acquiror Permit, or
any notice of any intention to conduct any investigation or institute
any proceeding, in any such case where such suspension, revocation,
termination, order, sanction, investigation or proceeding could
result, individually or in the aggregate, in a Material Adverse Effect
on Acquiror.
(d) Neither Acquiror nor any Acquiror Subsidiary has received
notice that Medicare, Medicaid, CHAMPUS, state approved Medicaid
waiver programs or any other third-party reimbursement program has any
claims for disallowance of costs against any of them which could
result in offsets against future reimbursement or recovery of prior
payments, which offsets or recoveries, individually or in the
aggregate, would have a Material Adverse Effect on Acquiror.
(e) Acquiror and the Acquiror Subsidiaries have filed all forms,
reports, statements, and other documents required to be filed with any
Governments Entities, including, without limitation, state insurance
and state and federal health regulatory authorities and reimbursement
programs, except where the failure to file such forms, reports,
statements or other documents under this Section 3.8(e) would not have
a Material Adverse Effect on Acquiror.
3.9 Fraud and Abuse Matters. Neither Acquiror nor any Acquiror
Subsidiary, nor the officers, directors, employees or agents of any of Acquiror
or any Acquiror Subsidiary, have engaged in any activities which are prohibited,
or are cause for civil penalties or mandatory or permissive exclusion from
Medicare, Medicaid, or any other State Health Care Program (as defined in
Section 1128(h) of the federal Social Security Act ("SSA")) or Federal Health
Care Program (as defined in Section 1128B(f) of the SSA) under Sections 1320a-7,
1320a-7a, 1320a-7b, or 1395nn of Title 42 of the United States Code, the federal
CHAMPUS statute, or the regulations promulgated pursuant to such statutes or
regulations or related state or local statutes or which are prohibited by any
private accrediting organization from which Acquiror or any Acquiror Subsidiary
seeks accreditation or by generally recognized professional standards of care or
conduct, including but not limited to the following activities:
(a) knowingly and willfully making or causing to be made a false
statement or representation of a material fact in any application for
any benefit or payment;
-14-
(b) knowingly and willfully making or causing to be made any
false statement or representation of a material fact for use in
determining rights to any benefit or payment;
(c) presenting or causing to be presented a claim for
reimbursement under CHAMPUS, Medicare, Medicaid or any other State
Health Care Program or Federal Health Care Program that is (i) for an
item or service that the person presenting or causing to be presented
knows or should know was not provided as claimed, or (ii) for an item
or service and the person presenting knows or should know that the
claim is false or fraudulent;
(d) knowingly and willfully offering, paying, soliciting or
receiving any remuneration (including any kickback, bribe, or rebate),
directly or indirectly, overtly or covertly, in cash or in kind (i) in
return for referring, or to induce the referral of, an individual to a
person for the furnishing or arranging for the furnishing of any item
or service for which payment may be made in whole or in part by
CHAMPUS, Medicare, Medicaid, or any other State Health Care Program or
Federal Health Care Program, or (ii) in return for, or to induce, the
purchase, lease, or order, or the arranging for or recommending of the
purchase, lease, or order, of any good, facility, service, or item for
which payment may be made in whole or in part by CHAMPUS, Medicare,
Medicaid or any other State Health Care Program or Federal Health Care
Program; or
(e) knowingly and willfully making or causing to be made or
inducing or seeking to induce the making of any false statement or
representation (or omitting to state a material fact required to be
stated therein or necessary to make the statements contained therein
not misleading) or a material fact with respect to (i) the conditions
or operations of a facility in order that the facility may qualify for
CHAMPUS, Medicare, Medicaid or any other State Health Care Program or
Federal Health Care Program certification, or (ii) information
required to be provided under SSA Section 1124A.
3.10 Medicare/Medicaid Participation.
(a) Neither Acquiror nor to the knowledge of Acquiror any other
person who immediately prior to the Closing has a direct or indirect
ownership interest (as those terms are defined in 42 C.F.R. Section
1001.1001(a)(2)) in Acquiror or any Acquiror Subsidiary, or who has an
ownership or control interest (as defined in SSA Section 1124(a)(3) or
any regulations promulgated thereunder) in Acquiror or any Acquiror
Subsidiary, or who is an officer, director, agent (as defined in 42
C.F.R. Section 1001.1001(a)(2)), or managing employee (as defined in
SSA Section 1126(b)) of Acquiror or any Acquiror Subsidiary, and to
the knowledge of Acquiror and any Acquiror Subsidiary, no person with
any relationship with such entity (including without limitation a
parent company or shareholder of, or partner in any Acquiror
Subsidiary) who immediately prior to the Closing will have an indirect
ownership interest (as that term is defined in 42 C.F.R. Section
1001.1001(a)(2)) in Acquiror or any Acquiror Subsidiary: (1) has had a
civil monetary penalty assessed against it under SSA Section 1128A;
(2) has been excluded from participation under Medicare, Medicaid or
any other State Health Care Program or Federal Health Care Program;
(3) has been convicted (as that term is defined in 42 C.F.R. Section
1001.2) of any of the following categories of offenses as described in
SSA Section 1128(a) and (b)(1), (2),
-15-
(3): (i) criminal offenses relating to the delivery of an item or
service under Medi care, Medicaid or any other State Health Care
Program or Federal Health Care Program; (ii) criminal offenses under
federal or state law relating to patient neglect or abuse in
connection with the delivery of a health care item or service; (iii)
criminal offenses under federal or state law relating to fraud, theft,
embezzlement, breach of fiduciary responsibility, or other financial
misconduct in connection with the delivery of a health care item or
service or with respect to any act or omission in a program operated
by or financed in whole or in part by any federal, state or local
government agency; (iv) federal or state laws relating to the
interference with or obstruction of any investigation into any
criminal offense described in (i) through (iii) above; or (v) criminal
offenses under federal or state law relating to the unlawful
manufacture, distribution, prescription or dispensing of a controlled
substance.
(b) Section 3.10(b) of the Acquiror Disclosure Schedule contains
a list of each existing Medicare and Medicaid contract (the "Acquiror
Program Agreements") or evidence thereof relating to the participation
by Acquiror and the Acquiror Subsidiaries in the Medicare, Medicaid
and CHAMPUS programs (the "Governmental Programs"). The businesses of
Acquiror and the Acquiror Subsidiaries are in compliance with all
material terms, conditions and provisions of the Acquiror Program
Agreements except where the failure to comply would not have a
Material Adverse Effect on Acquiror. Except as set forth in Section
3.10(b) of the Acquiror Disclosure Schedule, (i) no notice of any
offsets against future reimbursement has been received by Acquiror or
any Acquiror Subsidiary, nor to the knowledge of Acquiror, is there
any reasonable basis therefor with respect to the Governmental
Programs except with respect to offsets in the ordinary course of
business which could not, individually or in the aggregate, reasonably
be expected to result in a Material Adverse Effect on Acquiror, (ii)
there are no pending appeals, adjustments, challenges, audits,
litigation, notices of intent to reopen or open completed payments
with respect to the Governmental Programs except such adjustments made
in the ordinary course of business which could not, individually or in
the aggregate, reasonably be expected to result in a Material Adverse
Effect on Acquiror, and (iii) neither Acquiror nor any Acquiror
Subsidiary has received notice of pending, threatened or possible
decertification or other loss of participation in any of the
Governmental Programs which remains in effect as of the date hereof.
Section 3.10(b) of the Acquiror Disclosure Schedule lists any material
contracts between Acquiror or any Acquiror Subsidiary and third party
payors, copies of which have been made available to Acquiror. Acquiror
and each of the Acquiror Subsidiaries, as applicable, are in
compliance in all material respects with all of the terms, conditions
and provisions of the contracts referenced in the immediately
preceding sentence.
3.11 Litigation. As of the date of this Agreement, except as may be
disclosed in the Acquiror 10-K (as defined below), reports filed on Forms 10-Q
or 8-K or proxy statements filed on Schedule 14A for periods subsequent to the
period covered by such Acquiror 10-K, in each case filed prior to the date
hereof (such reports and filings, collectively, the "Acquiror Current Reports"),
or except as set forth in Section 3.11 of the Acquiror Disclosure Schedule,
there is no claim, litigation, suit, arbitration, mediation, action, proceeding,
unfair labor practice complaint or grievance pending or, to Acquiror's
-16-
knowledge, investigation of any kind, at law or in equity (including actions or
proceedings seeking injunctive relief), pending or, to Acquiror's knowledge,
threatened in writing against Acquiror or any Acquiror Subsidiary or with
respect to any property or asset of any of them, except for claims, litigations,
suits, arbitrations, mediations, actions, proceedings, complaints, grievances or
investigations which, individually or in the aggregate, (a) would not have a
Material Adverse Effect on Acquiror, (b) would not impair in any material
respect the ability of Acquiror or any Acquiror Subsidiary to perform its
obligations under this Agreement or any other document contemplated hereby or
thereby or (c) would not prevent the consummation by Acquiror or any Acquiror
Subsidiary of any of the transactions contemplated by this Agreement or any
other document contemplated hereby or thereby. Neither Acquiror nor any Acquiror
Subsidiary nor any property or asset of any of them is subject to any continuing
order, judgment, settlement agreement, injunction, consent decree or other
similar written agreement with or, to Acquiror's knowledge, continuing
investigation by, any Governmental Entity, or any judgment, order, writ,
injunction, consent decree or award of any Governmental Entity or arbitrator,
including, without limitation, cease-and-desist or other orders, except for such
matters which (a) would not reasonably be expected to have a Material Adverse
Effect on Acquiror, (b) would not impair in any material respect the ability of
Acquiror or Merger Sub to perform its obligations under this Agreement or (c)
would not prevent the consummation by Acquiror or Merger Sub of the transactions
contemplated by this Agreement.
3.12 Financial Statements and Reports. Acquiror has made available to the
Company true and complete copies of (a) its Annual Report on Form 10-K for the
year ended December 31, 1997 (the "Acquiror 10-K") as filed with the Securities
and Exchange Commission (the "Commission"), (b) its proxy statement relating to
the annual meeting of its stockholders held on April 28, 1998; (c) all
registration statements filed by Acquiror and declared effective under the
Securities Act (other than registration statements on Form S-8), and (d) all
other reports, statements and registration statements (including Quarterly
Reports on Form 10-Q and Current Reports on Form 8-K but excluding preliminary
material and reports pursuant to Sections 13(d) or 13(g) of the Exchange Act)
filed by it with the Commission other than registration statements on Form S-8.
The reports, statements and registration statements referred to in the
immediately preceding sentence (including, without limitation, any financial
statements or schedules or other information, included or incorporated by
reference therein) are referred to in this Agreement as the "Acquiror SEC
Filings." As of the respective times such documents were filed or, as
applicable, were effective, the Acquiror SEC Filings complied as to form in all
material respects with the requirements of the Securities Act or the Exchange
Act, as the case may be, and the rules and regulations promulgated thereunder,
and except to the extent that information contained in any Acquiror SEC Filings
has been revised or superseded by a later Acquiror SEC Filing filed and publicly
available prior to the date of this Agreement, did not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial
statements of Acquiror included in the Acquiror SEC Filings complied as of their
respective dates of filing with the Commission as to form in all material
respects with applicable accounting requirements and with the published rules
and regulations of the Commission with respect thereto, were prepared in
accordance with generally accepted accounting principles (as in effect from time
to time) applied on a consistent basis during the periods involved (except as
may be indicated therein or in the notes thereto or,
-17-
in the case of the unaudited interim financial statements, as permitted by Form
10-Q of the Commission) and present fairly the consolidated financial position,
consolidated results of operations and consolidated cash flows of Acquiror and
the Acquiror Subsidiaries as of the dates and for the periods indicated, except
(i) in the case of unaudited interim consolidated financial statements, to
normal recurring year-end audit adjustments and any other adjustments described
therein and (ii) any pro forma financial information contained therein is not
necessarily indicative of the consolidated financial position of Acquiror and
the Acquiror Subsidiaries as of the respective dates thereof and the
consolidated results of operations and cash flows for the periods indicated. No
Acquiror Subsidiary is required to file any form, report or other document with
the Commission. Except as set forth in the Acquiror Current Reports, and except
for liabilities and obligations incurred in the ordinary course of business
consistent with past practice, since the date of the most recent consolidated
balance sheet included in the Acquiror Current Reports, neither Acquiror nor any
Acquiror Subsidiary has any liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise) required by generally accepted
accounting principles to be recognized or disclosed on a consolidated balance
sheet of Acquiror and the Acquiror Subsidiaries or in the notes thereto which
could reasonably be expected to have a Material Adverse Effect on Acquiror. The
pro forma financial information (and related notes thereto) included in the
Acquiror SEC Filings present fairly the information shown therein and were
prepared, as of the respective dates of filing of the Acquiror SEC Filings with
the Commission, in accordance with the Commission's rules and guidelines with
respect to pro forma financial statements. The necessary pro forma adjustments
have been properly applied to the historical amounts in the compilation of such
pro forma financial information, the assumptions used in the preparation thereof
are reasonable and the adjustments used therein are appropriate to give effect
to the transactions and circumstances referred to therein.
3.13 Absence of Certain Changes or Events. Other than as disclosed in the
Acquiror Current Reports or in Section 3.13 to the Acquiror Disclosure Schedule,
since June 30, 1998 and through the date of this Agreement, the business of
Acquiror and of each of the Acquiror Subsidiaries has been conducted in the
ordinary course, and there has not been (i) any Material Adverse Effect on
Acquiror; or (ii) any split, combination or reclassification of any of the
capital stock of Acquiror.
3.14 Employee Benefit Plans and Employment Matters.
(a) Section 3.14(a) of the Acquiror Disclosure Schedule lists all
employee benefit plans, collective bargaining agreements, labor
contracts, and employment agreements not otherwise disclosed in the
Acquiror Current Reports in which Acquiror or any Acquiror Subsidiary
participates, or by which any of them are bound, including, without
limitation, (i) any profit sharing, deferred compensation, bonus,
stock option, stock purchase, pension, welfare, and incentive plan or
agreement; (ii) any plan providing for "fringe benefits" to their
employees, including, but not limited to, vacation, sick leave,
medical, hospitalization and life insurance; (iii) any written
employment agreement and any other employment agreement not terminable
at will; and (iv) any other "employee benefit plan" (within the
meaning of Section 3(3) of the Employment Retirement Income Security
Act of 1974 ("ERISA")). Acquiror and the Acquiror Subsidiaries are in
compliance in all material respects with the requirements prescribed
by all
-18-
Laws currently in effect applicable to employee benefit plans and to any
employment agreements, including, but not limited to, ERISA and the Code.
Acquiror and the Acquiror Subsidiaries have each performed all of its
obligations under all such employee benefit plans and employment agreements in
all material respects. There is no pending or, to the knowledge of Acquiror,
threatened legal action, proceeding or investigation against or involving any
Acquiror or Acquiror Subsidiary employee benefit plan which could result in a
material amount of liability to such employee benefit plan or to Acquiror, other
than routine claims for benefits involving less than $100,000 for each such
routine claim and $250,000 for all such routine claims in the aggregate.
(b) Neither Acquiror nor the Acquiror Subsidiaries sponsor or
participate in, and have not sponsored or participated in, any
employee pension benefit plan to which Section 4021 of ERISA applies
that would create a material amount of liability to Acquiror under
Title IV of ERISA.
(c) Neither Acquiror nor the Acquiror Subsidiaries sponsor or
participate in, and have not sponsored or participated in, any
employee benefit pension plan that is a "multiemployer plan" (within
the meaning of Section 3(37) of ERISA).
(d) All group health plans of Acquiror and the Acquiror
Subsidiaries have been operated in compliance with the group health
plan continuation coverage requirements of Section 4980B of the Code
in all material respects, to the extent such requirements are
applicable.
(e) There have been no acts or omissions by Acquiror or any
Acquiror Subsidiary or by any fiduciary, disqualified person or party
in interest with respect to an employee benefit plan of Acquiror or
any Acquiror Subsidiaries that have given rise to or could reasonably
be expected to give rise to a material amount of fines, penalties,
taxes, or related charges under Sections 502(c), 502(i) or 4071 of
ERISA or under Chapter 43 of the Code.
(f) No "reportable event," as defined in ERISA Section 4043,
other than those events with respect to which the Pension Benefit
Guaranty Corporation has waived the notice requirement, has occurred
with respect to any of the employee benefit plans of Acquiror.
(g) Acquiror has furnished the Company with true and correct
copies of all plan documents and employment agreements referred to on
the Acquiror Disclosure Schedule, including all amendments thereto,
and all related summary plan descriptions to the extent that one is
required by Law.
(h) For purposes of this Section 3.14, any reference to
"Acquiror" shall be deemed to include a reference to any entity that
is aggregated with Acquiror under the provisions of Section 414 of the
Code, to the extent that those aggregation rules apply to any
representation made herein.
-19-
3.15 Labor Matters. Except as disclosed in Section 3.15 of the Acquiror
Disclosure Schedule, neither Acquiror nor any Acquiror Subsidiary is a party to
any collective bargaining agreement with respect to any of their employees. None
of the employees of Acquiror or any Acquiror Subsidiary is represented by any
labor union. To the knowledge of Acquiror, there is no activity involving any
employees of Acquiror or the Acquiror Subsidiaries seeking to certify a
collective bargaining unit or engaging in any similar organizational activity.
3.16 Insurance. Acquiror and the Acquiror Subsidiaries maintain insurance
against such risks and in such amounts as Acquiror reasonably believes are
necessary to conduct its business. Acquiror and the Acquiror Subsidiaries are
not in default with respect to any provisions or requirements of any such
policy, nor have any of them failed to give notice or present any claim
thereunder in a due and timely fashion, except for defaults or failures which,
individually or in the aggregate, would not have a Material Adverse Effect on
Acquiror. Neither Acquiror nor any Acquiror Subsidiary has received any notice
of cancellation or termination in respect of any of its insurance policies.
3.17 Environmental Matters. Except as disclosed on Section 3.17 of the
Acquiror Disclosure Schedule:
(a) Acquiror and the Acquiror Subsidiaries have complied and are
in compliance with, and the real property owned, operated, leased or
used by Acquiror or the Acquiror Subsidiaries as of June 30, 1998, any
additional real property owned, operated, leased or used since that
date, and, for purposes of this Section 3.17, any real property
formerly owned or operated by Acquiror or any Acquiror Subsidiary
(collectively, the "Acquiror Real Property") and all improvements
thereon are in compliance with, all Environmental Laws (as defined in
Section 8.9(e)), except for such non-compliance as would not have a
Material Adverse Effect on Acquiror and would not be considered
"material" under the federal securities laws.
(b) Neither Acquiror nor any Acquiror Subsidiary has any
liability under any Environmental Law, nor is Acquiror or any Acquiror
Subsidiary responsible by contract, by operation of law, otherwise for
any liability of any other person under Environmental Law, which
either individually or in the aggregate would have a Material Adverse
Effect on Acquiror or would be considered "material" under the federal
securities laws. Except for matters which would not have a Material
Adverse Effect on Acquiror and would not be considered "material"
under the federal securities laws, there are no pending or threatened
actions, suits, orders, claims, legal proceedings or other proceedings
based on, and neither Acquiror nor any Acquiror Subsidiary, nor any
officer, director or stockholder thereof has directly or indirectly
received any formal or informal notice of any complaint, order,
directive, citation, notice of responsibility, notice of potential
responsibility, or information request from any Governmental Entity or
any other person or entity or knows or suspects any fact(s) which
might reasonably form the basis for any such actions or notices
arising out of or attributable to: (i) the current or past presence,
Release (as defined in Section 8.9(j)), or threatened Release of
Hazardous Materials (as defined in Section 8.9(f)) at or from any part
of the Acquiror Real Property; (ii) the off-site disposal or treatment
of Hazardous Materials
-20-
originating on or from the Acquiror Real Property or the businesses or
assets of Acquiror or any Acquiror Subsidiary; or (iii) any violation
of Environmental Laws at any part of the Acquiror Real Property or
arising from Acquiror's or any Acquiror Subsidiary's activities (or
the activities of Acquiror's or any Acquiror Subsidiary's predecessors
in title) involving Hazardous Materials.
(c) Except as disclosed in Section 3.17(c) of the Acquiror
Disclosure Schedule, Acquiror and the Acquiror Subsidiaries have been
duly issued, and currently have and will maintain through the Closing
Date, all permits, licenses, certificates and approvals required under
any Environmental Law, each of which is valid and in full force and
effect. Except in accordance with such permits, licenses, certificates
and approvals, there has been no Release of material regulated by such
permits, licenses, certificates or approvals at, on, under, or from
the Acquiror Real Property.
(d) Neither Acquiror nor any Acquiror Subsidiary has provided to
any Governmental Entity, as required by Law, notice of any Release
from any underground improvements, including but not limited to
treatment or storage tanks, or underground piping associated with such
tanks, used currently or in the past for the management of Hazardous
Materials. No portion of the Acquiror Real Property is or has been
used as a dump or landfill or consists of or contains filled in land
or wetlands.
(e) No Encumbrance in favor of any person relating to or in
connection with any demand, claim, action or cause of action,
assessment, loss, damage (including, without limitation, diminution in
value), liability, cost and expense (including, without limitation,
interest, penalties and attorneys' fees and disbursements)
(collectively "Claims") under any Environmental Law has been filed or
has attached to the Acquiror Real Property.
3.18 Tax Matters. Neither Acquiror nor, to the knowledge of Acquiror, any
of its affiliates has taken or agreed to take any action that would, nor does
Acquiror have any knowledge of any fact or circumstance that is reasonably
likely to, prevent the Merger from qualifying as a reorganization under the
provisions of Section 368(a) of the Code. Acquiror has paid, or made provision
in accordance with generally accepted accounting principles on its balance sheet
at December 31, 1997 included in the Acquiror 10-K, for all federal, state,
local, foreign or other governmental income, franchise, payroll, F.I.C.A.,
unemployment, withholding, real property, personal property, sales, payroll,
disability and all other taxes imposed on Acquiror or any Acquiror Subsidiary or
with respect to any of their respective properties, or otherwise payable by
them, including interest and penalties, if any, in respect thereof
(collectively, "Acquiror Taxes"), for the Acquiror taxable period ended December
31, 1997 and all fiscal periods of Acquiror prior thereto, except such
nonpayment, or failure to make provision, which, individually or in the
aggregate, would not have a Material Adverse Effect on Acquiror. Acquiror Taxes
paid and/or incurred from December 31, 1997 until the Closing Date shall include
only Acquiror Taxes incurred in the ordinary course of business. Acquiror and
each of the Acquiror Subsidiaries have timely filed all returns, reports and
certifications related to Acquiror Taxes which Acquiror and/or such Acquiror
Subsidiary (as the case may be) are required to file ("Acquiror Tax Returns"),
and have paid or provided for all the amounts shown to be due thereon, except
where such failure to make such timely filings, individually or in the
-21-
aggregate, would not have a Material Adverse Effect on Acquiror, and except for
the nonpayment of such amounts which, individually or in the aggregate, would
not have a Material Adverse Effect on Acquiror. Neither Acquiror nor any
Acquiror Subsidiary (i) has filed or entered into, or is otherwise bound by, any
currently effective election, consent or extension agreement that extends any
applicable statute of limitations with respect to taxable periods of Acquiror,
(ii) is a party to any contractual obligation requiring the indemnification or
reimbursement of any person with respect to the payment of any Acquiror Taxes,
other than among Acquiror and the Acquiror Subsidiaries, or (iii) has received
any claim by an authority in a jurisdiction where neither Acquiror nor any
Acquiror Subsidiary files Acquiror Tax Returns that they are or may be subject
to Acquiror Taxes by that jurisdiction, except for any such claims as,
individually or in the aggregate, would not have a Material Adverse Effect on
Acquiror. No action or proceeding is pending or, to Acquiror's knowledge,
threatened orally to any Acquiror officer or in writing by any governmental
authority for any audit, examination, deficiency, assessment or collection from
Acquiror or any Acquiror Subsidiary of any Acquiror Taxes, no unresolved claim
for any deficiency, assessment or collection of any Acquiror Taxes has been
asserted against Acquiror or any Acquiror Subsidiary, and all resolved
assessments of Acquiror Taxes have been paid or are reflected on the Acquiror
balance sheet at December 31, 1997 included in the Acquiror 10-K, except for any
of the foregoing which, individually or in the aggregate, would not have a
Material Adverse Effect on Acquiror.
3.19 Intellectual Property. Except as disclosed in Section 3.19 of the
Acquiror Disclosure Schedule, Acquiror and the Acquiror Subsidiaries own, or are
licensed or otherwise possess or have all necessary rights to use all patents,
trademarks, trade names, service marks, copyrights and any applications
therefor, net lists, schematics, technology, know-how, trade secrets, inventory,
ideas, algorithms, processes, computer software programs and applications (in
both source code and object code form), and tangible or intangible proprietary
information or material ("Intellectual Property") which is used in the conduct
of their respective businesses (collectively, "Acquiror Intellectual Property
Rights"). To the knowledge of Acquiror, neither Acquiror nor any Acquiror
Subsidiary is infringing or otherwise violating the intellectual property rights
of any person which infringement or violation would subject Acquiror or any
Acquiror Subsidiary to liabilities which, individually or in the aggregate,
would have a Material Adverse Effect on Acquiror or which would prevent Acquiror
or any Acquiror Subsidiary from conducting their respective businesses
substantially in the manner in which they are now being conducted. No claim has
been made or, to Acquiror's knowledge, threatened against Acquiror or any
Acquiror Subsidiary alleging any such violation. To the knowledge of Acquiror,
there is no unauthorized use, disclosure, infringement or misappropriation of
any Acquiror Intellectual Property Rights or any Intellectual Property right of
any third party to the extent licensed by or through Acquiror, by any third
party, including any employee or former employee of Acquiror, that could
reasonably be expected to have a Material Adverse Effect on Acquiror. Acquiror
is not, nor will it be as a result of the execution and delivery of this
Agreement or the performance of it obligations under this Agreement, in breach
of any license, sublicense or other agreement relating to the Acquiror
Intellectual Property Rights or Third Party Intellectual Property Rights (as
defined in Section 8.9(l)). Acquiror has not advised any third party that such
third party may be infringing any Acquiror Intellectual Property Rights or
-22-
breaching any license or agreement involving Acquiror Intellectual Property
Rights that could reasonably be expected to have a Material Adverse Effect on
Acquiror.
3.20 No Default. Except as set forth in Section 3.20 of the Acquiror
Disclosure Schedule, neither Acquiror nor any of the Acquiror Subsidiaries is in
default or violation (and no event has occurred which with or without notice or
the lapse of time or both would constitute a default or violation) of any term,
condition or provision of (i) its certificate or articles of incorporation or
bylaws or other organizational documents, (ii) any Laws applicable to Acquiror
or any Acquiror Subsidiary or by which any of their respective properties is
bound or affected, or (iii) any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which Acquiror or any Acquiror Subsidiary is a party or by which Acquiror or
any Acquiror Subsidiary or any of their respective properties or assets is bound
or affected, except in the case of clauses (ii) and (iii) above for defaults or
violations which would not have a Material Adverse Effect on Acquiror.
3.21 Title to Properties; Encumbrances. Section 3.21 of the Acquiror
Disclosure Schedule sets forth all real property owned or leased by Acquiror and
the Acquiror Subsidiaries (the "Acquiror Real Property"), indicating which
facilities are owned and which are leased. Except as disclosed in the Acquiror
Current Reports and as described in clause (ii) below: (i) each of Acquiror and
the Acquiror Subsidiaries has good, valid and marketable title to, or a valid
leasehold interest in, as applicable, all of its properties and assets (real,
personal and mixed, tangible and intangible), including, without limitation, all
Acquiror Real Property and all other properties and assets reflected in the
consolidated balance sheet of Acquiror and the Acquiror Subsidiaries at June 30,
1998 included in the Acquiror Form 10-Q for the quarter ended June 30, 1998
(except for properties and assets disposed of in the ordinary course of business
and consistent with past practice since June 30, 1998) and (ii) none of such
properties or assets are subject to any liability, obligation, claim, lien,
mortgage, pledge, security interest, conditional sale agreement, charge or
encumbrance of any kind (whether absolute, accrued, contingent or otherwise),
except for liens securing repayment of indebtedness incurred in the ordinary
course consistent with past practice subsequent to June 30, 1998 and liens for
taxes not yet due and payable, unrecorded and undelivered mortgages between a
Acquiror Subsidiary and a joint venture entity in which Acquiror is a limited
partner or a managing member (as identified in Section 3.21 of the Acquiror
Disclosure Schedule) and easements and restrictions of record, if any, which are
not substantial in amount, do not materially detract from the value of the
property or assets subject thereto and do not impair the operations of Acquiror
and the Acquiror Subsidiaries. Each of the leases is in full force and effect
and there is no default by landlord or tenant existing thereunder (and no event
has occurred which, with or without notice or the passage of time or both, would
constitute a default under such lease) which would have a Material Adverse
Effect on Acquiror. Except as set forth in Section 3.21 of the Acquiror
Disclosure Schedule, Acquiror and the Acquiror Subsidiaries have obtained
owner's title insurance on all of the Acquiror Real Property owned by Acquiror
or any Acquiror Subsidiary, in each case insuring good and marketable fee simple
title to such Acquiror Real Property, in an amount at least equal to the
aggregate value of such Acquiror Real Property together with all improvements
thereon. Except as would not cause a Material Adverse Effect on Acquiror, all of
the properties and assets of Acquiror and the Acquiror Subsidiaries are in
-23-
good operating condition and repair, and maintenance thereon has not been
deferred beyond industry standards, and are suitable for the purposes for which
they are presently being used.
3.22 Brokers. Neither Acquiror nor any Acquiror Subsidiary has paid or is
obligated to pay any brokerage, finder's or other fee or commission to any
broker, finder, investment banker or other intermediary in connection with this
Agreement, except that Acquiror has retained Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ") as its financial advisor for the transactions
contemplated hereby, pursuant to an engagement letter a copy of which (as
executed by all the parties thereto) has been provided previously to the
Company.
3.23 Opinion of Financial Advisor. The Board of Directors of the Acquiror
has received the opinion of DLJ to the effect that, as of the date of this
Agreement, the consideration to be paid to the holders of shares of Company
Common Stock pursuant to this Agreement is fair to Acquiror, from a financial
point of view, a written copy of which (as executed) will be provided to the
Company promptly after receipt thereof by the Acquiror.
3.24 Company Stock Ownership. Except as contemplated pursuant to the
terms of this Agreement and the transactions to be consummated hereby or by the
Option Agreement, neither Acquiror nor any of the Acquiror Subsidiaries own any
shares of Company Common Stock or rights to acquire or dispose of Company Common
Stock.
3.25 Voting Requirements. There is no vote of the holders of any class or
series of Acquiror's capital stock necessary to approve and adopt this Agreement
and the transactions contemplated hereby.
3.26 Books and Records. The books of account, stock records, minute books
and other records of Acquiror and the Acquiror Subsidiaries are complete and
correct, and Acquiror has devised and maintained a system of internal accounting
controls sufficient to provide the reasonable assurances enumerated in Section
13(b)(2)(B) of the Exchange Act.
3.27 Disclosure. Neither (i) the representations or warranties by
Acquiror contained in this Agreement, or the statements contained in the
Acquiror Disclosure Schedule or any other document, certificate or other
instrument delivered to or to be delivered by or on behalf of Acquiror or
required to be filed by Acquiror or any Acquiror Subsidiary with any
Governmental Entity in connection with or pursuant to this Agreement and all
other documents contemplated hereby, nor (ii) the information supplied or to be
supplied by or on behalf of Acquiror or any Acquiror Subsidiary to any person
for inclusion in any document or application filed or to be filed with any
Governmental Entity in connection with the transactions contemplated by this
Agreement, the Option Agreement and all other documents contemplated hereby and
thereby, contains or will contain any untrue statement of a material fact or
omits or will omit to state any material fact necessary, in light of the
circumstances under which it was or will be made, in order to make the
statements herein or therein not misleading or to correct a prior statement. All
documents required to be filed by Acquiror or any Acquiror Subsidiary with any
Governmental Entity in connection with this Agreement and
-24-
all other documents contemplated hereby or the transactions contemplated
hereunder will comply in all material respects with the provisions of applicable
Law.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
On or prior to the date hereof, the Company has delivered to Acquiror a
schedule (the "Company Disclosure Schedule") setting forth, among other things,
items the disclosure of which is necessary or appropriate either (i) in response
to an express disclosure requirement contained in a provision hereof or (ii) as
an exception to one or more representations or warranties contained in Article
IV or to one or more of its covenants contained in Article V; provided that the
mere inclusion of an item in the Company Disclosure Schedule as an exception to
a representation or warranty shall not be deemed an admission by the Company
that such item represents a material exception or fact, event or circumstance or
that such item is reasonably likely to result in a Material Adverse Effect on
the Company. The Company represents and warrants to Acquiror and Merger Sub, as
of the date of this Agreement that, except as set forth in the Company
Disclosure Schedule, which shall identify exceptions by specific Section
references:
4.1 Organization. The Company and each of its subsidiaries (the "Company
Subsidiaries") has been duly organized and is validly existing and in good
standing (with respect to jurisdictions which recognize such concept) under the
laws of the jurisdiction of its organization, has all requisite power and
authority to own, operate and lease its properties and to carry on its business
as it is now being conducted, and is qualified or licensed to do business and is
in good standing (with respect to jurisdictions which recognize such concept) in
each jurisdiction in which the nature of the business conducted by it or the
ownership or leasing of its properties makes such qualification necessary, other
than where failure to be so qualified or licensed, individually or in the
aggregate, would not have a Material Adverse Effect on the Company. The term
"Material Adverse Effect on the Company" as used in this Agreement shall mean
any change or effect that, individually or when taken together with all such
other changes or effects, is or would reasonably be expected to be materially
adverse to the financial condition, results of operations, properties or
business of the Company and the Company Subsidiaries taken as a whole; provided,
however, that Material Adverse Effect on the Company shall not be deemed to
include the impact of (i) changes in general economic conditions or conditions
applicable to the assisted living industry generally, (ii) changes or effects
which result from the execution and delivery of this Agreement or the
consummation of any transactions contemplated hereby other than changes or
effects which result from (A) a change in control or change of control or
similar event applicable to the Company or any Company Subsidiary or (B) the
failure to obtain one or more Third Party Consents (as defined below) which
failure individually or in the aggregate would have a Material Adverse Effect on
the Company, (iii) the matters set forth in Section 4.1 of the Company
Disclosure Schedule, and (iv) the inability of the Company to obtain the consent
to this Agreement of Catholic Health Initiatives ("CHI") related to the joint
venture agreements between the Company and CHI to develop, own and/or operate
assisted living residences in Ohio, New Mexico and Colorado. True and complete
copies of the Articles of Incorporation and the Code of Regulations, together
with all
-25-
amendments thereto, of the Company have heretofore been delivered to Acquiror,
and such Articles of Incorporation and Code of Regulations are in full force and
effect. Section 4.1 of the Company Disclosure Schedule contains a complete and
accurate list of all of the Company Subsidiaries, a list of the jurisdictions
where the Company and each of the Company Subsidiaries is duly qualified or
licensed to do business as a foreign organization and Company's percentage
ownership in each such Company Subsidiary. Neither the Company nor any Company
Subsidiary is in violation of any provision of its articles or certificate of
incorporation or bylaws (each as may have been amended or restated) or other
organizational documents, as the case may be.
4.2 Capitalization. As of the date of this Agreement, the authorized
capital stock of the Company consists in its entirety of (i) 28,000,000 shares
of Company Common Stock, and (ii) 2,000,000 shares of preferred stock, without
par value, none of which were issued and outstanding as of the date of this
Agreement. As of October 16, 1998, (i) 6,837,400 shares of Company Common Stock
were issued and outstanding, (ii) no shares of Company Common Stock were held in
the treasury of the Company, and (iii) 550,000 shares of Company Common Stock
were reserved for future issuance pursuant to employee stock options granted
pursuant to the Company Option Plans (as defined in Section 5.7). Each of the
outstanding shares of capital stock of the Company were issued in compliance
with all applicable federal and state laws concerning the issuance of
securities. Except as set forth on Section 4.2 of the Company Disclosure
Schedule, all of the outstanding shares of capital stock of each of the Company
Subsidiaries is owned beneficially and of record by the Company or a Company
Subsidiary, free and clear of all Encumbrances. All of the outstanding shares of
capital stock of the Company and each of the Company Subsidiaries have been duly
authorized, validly issued and are fully paid and nonassessable and are not
subject to preemptive rights created by statute, their respective charter or
bylaws or any agreement to which any such entity is a party or by which any such
entity is bound. The Company has heretofore delivered to Acquiror, correct and
complete copies of the Company's Stock Option Plans, in each case as currently
in effect. Except as set forth in this Section 4.2 or in Section 4.2 of the
Company Disclosure Schedule, there are no options, warrants, puts, calls or
other rights (including registration rights), agreements, arrangements or
commitments of any character to which the Company or any Company Subsidiary is a
party or by which any of them is bound relating to the issued or unissued
capital stock, or other interest in, of the Company or any Company Subsidiary or
obligating the Company or any Company Subsidiary to grant, issue, deliver or
sell, or cause to be granted, issued, delivered or sold, any shares of capital
stock of, or other equity interests in, the Company or any Company Subsidiary,
by sale, lease, license or otherwise. All shares of Company Common Stock subject
to issuance as aforesaid, upon issuance on the terms and conditions specified in
the instruments pursuant to which they are issuable, will be duly authorized,
validly issued, fully paid and nonassessable and will not have been issued in
violation of or subject to any preemptive rights created by statute, the
articles of incorporation or bylaws of the Company or any agreement to which the
Company is a party or to which the Company is bound. Except as set forth in this
Section 4.2, in Section 4.2 of the Company Disclosure Schedule or in the Company
Current Reports (as defined in Section 4.9), there are no outstanding
contractual obligations of the Company or any Company Subsidiary to (x)
repurchase, redeem or otherwise acquire any shares of Company Common Stock or
any capital
-26-
stock, or other interests in, of any Company Subsidiary or (y) except for
guarantees of obligations of, or loans to or capital contribution commitments,
the Company Subsidiaries entered into in the ordinary course of business,
provide funds to, make any investment in (in the form of a loan, capital
contribution or otherwise) or provide any guarantee with respect to the
obligations of, any Company Subsidiary or any other person. There are no
agreements, arrangements or commitments of any character (contingent or
otherwise) pursuant to which any person is or may be entitled to receive any of
the revenues or earnings, or any payment based thereon or calculated in
accordance therewith, of the Company or any Company Subsidiary. Each outstanding
share of capital stock, or other interest in, of each Company Subsidiary is duly
authorized, validly issued, fully paid and nonassessable and, except as set
forth in Section 4.2 of the Company Disclosure Schedule, each such share owned
by the Company or another Company Subsidiary is owned free and clear of all
Encumbrances. Except for the capital stock of the Company Subsidiaries and
except for the ownership interests set forth in Section 4.2 of the Company
Disclosure Schedule, the Company does not own, directly or indirectly, any
capital stock or other ownership interest in, or any interest convertible into
or exchangeable or exercisable for capital stock of or other ownership interest
in, any person. The Company is not aware of any voting trust, stockholder
agreement or other similar arrangement relating to any shares of Company Common
Stock.
4.3 Options or Other Rights. Except as disclosed in Section 4.3 of the
Company Disclosure Schedule or in the Company SEC Filings (as defined in Section
4.10), there is no outstanding right, subscription, warrant, call, unsatisfied
preemptive right, option or other agreement or arrangement of any kind to
purchase or otherwise to receive from the Company or any Company Subsidiary any
of the outstanding, authorized but unissued, unauthorized or treasury shares of
the capital stock or any other security of the Company or any Company Subsidiary
and there is no outstanding security of any kind convertible into or
exchangeable for such capital stock. Except as set forth in Section 4.3 of the
Company Disclosure Schedule or the Company SEC Filings, there are no agreements
or understandings among the Company or any Company Subsidiary on the one hand
and any other person on the other hand concerning the registration of any
security of the Company or a Company Subsidiary under the Securities Act. All
such registration rights agreements will be null and void and of no further
force and effect upon completion of the Merger. Except as set forth in Section
4.3 of the Company Disclosure Schedule, no options granted under the Company
Option Plans have provisions which accelerate the vesting or right to exercise
such options upon the occurrence of certain events, including, but not limited
to, the consummation of the Merger.
4.4 Authority Relative to this Agreement. The Company has all requisite
corporate power and authority to execute and deliver this Agreement and the
Option Agreement, to perform its obligations hereunder and thereunder and to
consummate the transactions contemplated on its part hereby and thereby to be
consummated by the Company. The execution and delivery of this Agreement and the
Option Agreement by the Company and the consummation of the transactions
contemplated on its part hereby and thereby have been duly authorized by all
necessary corporate action, and, other than the approval of the Company's
stockholders as provided in Section 5.1(a) hereof, no other corporate
proceedings on the part of the Company are necessary to authorize the execution
and delivery of this Agreement and the
-27-
Option Agreement by the Company or the consummation of the transactions
contemplated on its part hereby and thereby. This Agreement and the Option
Agreement have been duly executed and delivered by the Company and, assuming the
due authorization, execution and delivery of this Agreement by Acquiror and
Merger Sub, constitute the legal, valid and binding obligations of the Company,
enforceable against the Company in accordance with their respective terms,
except to the extent that such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization or other laws affecting the enforcement
of creditors' rights generally or by general equity principles.
4.5 No Violation. Other than as listed on Section 4.5 to the Company
Disclosure Schedule, the execution and delivery of this Agreement and of the
Option Agreement by the Company do not, the performance by the Company of its
obligations hereunder and thereunder will not, and the consummation by the
Company of the transactions contemplated to be performed by it hereby and
thereby will not (i) violate or conflict with any provision of any Law in effect
on the date of this Agreement and applicable to the Company or any Company
Subsidiary or by which any of their respective properties or assets is bound or
subject, (ii) require the Company or any Company Subsidiary to obtain any
consent, waiver, approval, license or authorization or permit of, or make any
filing with, or notification to, any Governmental Entities, based on laws,
rules, regulations and other requirements of Governmental Entities in effect and
of the date of this Agreement (other than (a) the filing of a pre-merger
notification report under the HSR Act and the expiration of the applicable
waiting period, (b) filings or authorizations required in connection or in
compliance with the provisions of the Exchange Act, the Securities Act, the
OGCL, the Bylaws of the Nasdaq or the "takeover" or "blue sky" laws of various
states, (c) filing and recordation of appropriate merger documents as required
by the OGCL and (d) any other filings and approvals expressly contemplated by
this Agreement), (iii) require the consent, waiver, approval, license or
authorization of any person (other than Governmental Entities), (iv) violate,
conflict with or result in a breach of or the acceleration of any obligation
under, or constitute a default (or an event which with notice or the lapse of
time or both would become a default) under, or give to others any rights of, or
result in any, termination, amendment, acceleration or cancellation of, or loss
of any benefit or creation of a right of first refusal, or require any payment
under, or result in the creation of a lien or other encumbrance on any of the
properties or assets of the Company or any Company Subsidiary pursuant to or
under any provision of any indenture, mortgage, note, bond, lien, lease,
license, agreement, contract, order, judgment, ordinance, Company Permit (as
defined below) or other instrument or obligation to which the Company or Company
Subsidiary is a party or by which the Company or any Company Subsidiary or any
of their respective properties is bound or subject to, or (v) conflict with or
violate the Articles of Incorporation or the Code of Regulations, or the
equivalent organizational documents, in each case as amended or restated, of
Company or any of the Company Subsidiaries, except for any such conflicts,
consents, waivers, approvals, licenses, filings or violations described in
clause (i) or breaches, defaults, events, rights of termination, amendment,
acceleration or cancellation, payment obligations or liens or encumbrances
described in clause (iv) that would not have a Material Adverse Effect on the
Company and except for such consents, waivers, approvals, licenses or
authorizations described in clauses (ii) or (iii) that individually or in the
aggregate would not be material to the Company or to the Acquiror, and except
where the failure to obtain such consents,
-28-
approvals, authorizations or permits, or to make such filings or notifications
would not, either individually or in the aggregate, prevent the Company from
performing any of its obligations under this Agreement or the Option Agreement
and would not have a Material Adverse Effect on Company. Neither the Company nor
any of its affiliates or associates (as each such term is defined in Section 203
of the Delaware General Corporation Law ("DGCL") is, prior to the date hereof,
an "interested stockholder" (as such term is defined in Section 203 of the DGCL)
of Acquiror. There are no reasonable grounds to believe that the Company or the
Surviving Corporation would be rendered insolvent by the Merger or the
conversion of Company Shares in the Merger within the meaning of Section 1701.78
of the OGCL.
4.6 Compliance with Laws.
(a) As of the date of this Agreement, each of the Company and the
Company Subsidiaries holds all licenses, CONs, franchises, grants,
permits, easements, variances, accreditations, exemptions, consents,
certificates, identification numbers, approvals, orders, and other
authorizations (collectively, "Company Permits") necessary to own,
lease and operate its properties and to carry on its business as it is
now being conducted, are certified as providers under all applicable
Medicare, Medicaid and CHAMPUS programs to the extent required to be
so certified, and are in compliance with, and have performed in all
material respects all obligations under, all Company Permits and all
Laws governing their respective businesses, including, without
limitation, the requirements, guidelines, rules and regulations of
Medicare, Medicaid, CHAMPUS, state approved Medicaid waiver programs
and other third-party reimbursement programs, except where the failure
to hold such Company Permits or to so comply or perform, individually
or in the aggregate, would not have a Material Adverse Effect on the
Company. No Company Permits will in any way be affected by, or
terminate or lapse by reason of, the transactions contemplated by this
Agreement.
(b) To the Company's knowledge, all health care personnel
employed by the Company or any Company Subsidiary are properly
licensed to the extent required to perform the duties of their
employment in each jurisdiction where such duties are performed.
(c) Except as set forth in Section 4.6(c) of the Company
Disclosure Schedule, no action or proceeding is pending or, to the
Company's knowledge, threatened that may result in the suspension,
revocation or termination of any Company Permit, the issuance of any
cease-and-desist order, or the imposition of any administrative or
judicial sanction, and neither the Company nor any Company Subsidiary
has received any notice from any governmental authority in respect of
the suspension, revocation or termination of any Company Permit, or
any notice of any intention to conduct any investigation or institute
any proceeding, in any such case where such suspension, revocation,
termination, order, sanction, investigation or proceeding could
result, individually or in the aggregate, in a Material Adverse Effect
on the Company.
(d) Neither the Company nor any Company Subsidiary has received
notice that Medicare, Medicaid, CHAMPUS, state approved Medicaid
waiver programs or any other third-party reimbursement program has any
claims for disallowance of costs against any of them which could
result in offsets against future reimbursement or recovery of prior
payments, which
-29-
offsets or recoveries, individually or in the aggregate, would have a
Material Adverse Effect on Company.
(e) The Company and the Company Subsidiaries have filed all
forms, reports, statements, and other documents required to be filed
with any Governments Entities, including, without limitation, state
insurance and state and federal health regulatory authorities and
reimbursement programs, except where the failure to file such forms,
reports, statements or other documents under this Section 4.6(e) would
not have a Material Adverse Effect on the Company.
4.7 Fraud and Abuse Matters. Neither the Company nor any Company
Subsidiary, nor the officers, directors, employees or agents of any of the
Company or any Company Subsidiary, have engaged in any activities which are
prohibited, or are cause for civil penalties or mandatory or permissive
exclusion from Medicare, Medicaid, or any other State Health Care Program or
Federal Health Care Program under Sections 1320a-7, 1320a-7a, 1320a-7b, or
1395nn of Title 42 of the United States Code, the federal CHAMPUS statute, or
the regulations promulgated pursuant to such statutes or regulations or related
state or local statutes or which are prohibited by any private accrediting
organization from which the Company or any Company Subsidiary seeks
accreditation or by generally recognized professional standards of care or
conduct, including but not limited to the following activities:
(a) knowingly and willfully making or causing to be made a false
statement or representation of a material fact in any application for
any benefit or payment;
(b) knowingly and willfully making or causing to be made any
false statement or representation of a material fact for use in
determining rights to any benefit or payment;
(c) presenting or causing to be presented a claim for
reimbursement under CHAMPUS, Medicare, Medicaid or any other State
Health Care Program or Federal Health Care Program that is (i) for an
item or service that the person presenting or causing to be presented
knows or should know was not provided as claimed, or (ii) for an item
or service and the person presenting knows or should know that the
claim is false or fraudulent;
(d) knowingly and willfully offering, paying, soliciting or
receiving any remuneration (including any kickback, bribe, or rebate),
directly or indirectly, overtly or covertly, in cash or in kind (i) in
return for referring, or to induce the referral of, an individual to a
person for the furnishing or arranging for the furnishing of any item
or service for which payment may be made in whole or in part by
CHAMPUS, Medicare, Medicaid, or any other State Health Care Program or
Federal Health Care Program, or (iii) in return for, or to induce, the
purchase, lease, or order, or the arranging for or recommending of the
purchase, lease, or order, of any good, facility, service, or item for
which payment may be made in whole or in part by CHAMPUS, Medicare,
Medicaid or any other State Health Care Program or Federal Health Care
Program; or
-30-
(e) knowingly and willfully making or causing to be made or
inducing or seeking to induce the making of any false statement or
representation (or omitting to state a material fact required to be
stated therein or necessary to make the statements contained therein
not misleading) or a material fact with respect to (i) the conditions
or operations of a facility in order that the facility may qualify for
CHAMPUS, Medicare, Medicaid or any other State Health Care Program or
Federal Health Care Program certification, or (ii) information
required to be provided under SSA Section 1124A.
4.8 Medicare/Medicaid Participation.
(a) Neither the Company nor to the knowledge of the Company any
other person who immediately prior to the Closing has a direct or
indirect ownership interest (as those terms are defined in 42 C.F.R.
Section 1001.1001(a)(2)) in the Company or any Company Subsidiary, or
who has an ownership or control interest (as defined in SSA Section
1124(a)(3) or any regulations promulgated thereunder) in the Company
or any Company Subsidiary, or who is an officer, director, agent (as
defined in 42 C.F.R. Section 1001.1001(a)(2)), or managing employee
(as defined in SSA Section 1126(b)) of the Company or any Company
Subsidiary, and to the knowledge of the Company and any Company
Subsidiary, no person with any relationship with such entity
(including without limitation a parent company or shareholder of, or
partner in any Company Subsidiary) who immediately prior to the
Closing has an indirect ownership interest (as that term is defined in
42 C.F.R. Section 1001.1001(a)(2)) in the Company or any Company
Subsidiary: (1) has had a civil monetary penalty assessed against it
under SSA Section 1128A; (2) has been excluded from participation
under Medicare, Medicaid or any other State Health Care Program or
Federal Health Care Program; (3) has been convicted (as that term is
defined in 42 C.F.R. Section 1001.2) of any of the following
categories of offenses as described in SSA Section 1128(a) and (b)(1),
(2), (3): (i) criminal offenses relating to the delivery of an item or
service under Medicare, Medicaid or any other State Health Care
Program or Federal Health Care Program; (ii) criminal offenses under
federal or state law relating to patient neglect or abuse in
connection with the delivery of a health care item or service; (iii)
criminal offenses under federal or state law relating to fraud, theft,
embezzlement, breach of fiduciary responsibility, or other financial
misconduct in connection with the delivery of a health care item or
service or with respect to any act or omission in a program operated
by or financed in whole or in part by any federal, state or local
government agency; (iv) federal or state laws relating to the
interference with or obstruction of any investigation into any
criminal offense described in (i) through (iii) above; or (v) criminal
offenses under federal or state law relating to the unlawful
manufacture, distribution, prescription or dispensing of a controlled
substance.
(b) Section 4.8(b) of the Company Disclosure Schedule contains a
list of each existing Medicare and Medicaid contract (the "Company
Program Agreements") or evidence thereof relating to the participation
by Company and the Company Subsidiaries in the Governmental Programs.
The businesses of the Company and the Company Subsidiaries are in
compliance with all material terms, conditions and provisions of the
Company Program Agreements except where the failure to comply would
not have a Material Adverse Effect on Company. Except as set forth in
the Section 4.8(b) of the Company Disclosure Schedule, (i) no notice
of any offsets against future reimbursement has been received by the
Company or
-31-
any Company Subsidiary, nor to the knowledge of Company, is there any
reasonable basis therefor with respect to the Governmental Programs
except with respect to offsets in the ordinary course of business
which could not, individually or in the aggregate, reasonably be
expected to result in a Material Adverse Effect on the Company, (ii)
there are no pending appeals, adjustments, challenges, audits,
litigation, notices of intent to reopen or open completed payments
with respect to the Governmental Programs except such adjustments made
in the ordinary course of business which could not, individually or in
the aggregate, reasonably be expected to result in a Material Adverse
Effect on the Company, and (iii) neither the Company nor any Company
Subsidiary has received notice of pending, threatened or possible
decertification or other loss of participation in any of the
Governmental Programs which remains in effect as of the date hereof.
Section 4.8(b) of the Company Disclosure Schedule lists any material
contracts between the Company or any Company Subsidiary and third
party payors, copies of which have been made available to the Company.
The Company and each of the Company Subsidiaries, as applicable, are
in compliance in all material respects with all of the terms,
conditions and provisions of the contracts referenced in the
immediately preceding sentence.
4.9 Litigation. As of the date of this Agreement, except as may be
disclosed in the Company 10-K (as defined below), reports filed on Forms 10-Q or
8-K or proxy statements filed on Schedule 14A for periods subsequent to the
period covered by such Company 10-K, in each case filed prior to the date hereof
(such reports and filings, collectively, the "Company Current Reports"), or
except as set forth in Section 4.9 of the Company Disclosure Schedule, there is
no claim, litigation, suit, arbitration, mediation, action, proceeding, unfair
labor practice complaint or grievance pending or, to the Company's knowledge,
investigation of any kind, at law or in equity (including actions or proceedings
seeking injunctive relief), pending or, to the Company's knowledge, threatened
in writing against the Company or any Company Subsidiary or with respect to any
property or asset of any of them, except for claims, litigations, suits,
arbitrations, mediations, actions, proceedings, complaints, grievances or
investigations which, individually or in the aggregate, (a) would not have a
Material Adverse Effect on the Company, (b) would not impair in any material
respect the ability of the Company or any Company Subsidiary to perform its
obligations under this Agreement or any other document contemplated hereby or
thereby or (c) would not prevent the consummation by the Company or any Company
Subsidiary of any of the transactions contemplated by this Agreement or any
other document contemplated hereby or thereby. Neither the Company nor any
Company Subsidiary nor any property or asset of any of them is subject to any
continuing order, judgment, settlement agreement, injunction, consent decree or
other similar written agreement with or, to the Company's knowledge, continuing
investigation by, any Governmental Entity, or any judgment, order, writ,
injunction, consent decree or award of any Governmental Entity or arbitrator,
including, without limitation, cease-and-desist or other orders, except for such
matters which (a) would not reasonably be expected to have a Material Adverse
Effect on the Company, (b) would not impair in any material respect the ability
of the Company or any Company Subsidiary to perform its obligations under this
Agreement or any other document contemplated hereby or thereby or (c) would not
prevent the consummation by the Company or any Company Subsidiary of any of the
transactions contemplated by this Agreement or any other document contemplated
hereby or thereby.
-32-
4.10 Financial Statements and Reports. The Company has made available to
Acquiror true and complete copies of (a) its Annual Report on Form 10-K for the
year ended December 31, 1997 (the "Company 10-K"), as filed with the Commission,
(b) its proxy statement relating to the annual meeting of its shareholders held
on May 12, 1998, (c) all registration statements filed by the Company and
declared effective under the Securities Act (other than registration statements
on Form S-8) and (d) all other reports, statements and registration statements
(including Quarterly Reports on Form 10-Q and Current Reports on Form 8-K but
excluding preliminary material and reports pursuant to Sections 13(d) or 13(g)
of the Exchange Act) filed by it with the Commission other than registration
statements on Form S-8. The reports, statements and registration statements
referred to in the immediately preceding sentence (including, without
limitation, any financial statements or schedules or other information included
or incorporated by reference therein) are referred to in this Agreement as the
"Company SEC Filings." As of the respective times such documents were filed or,
as applicable, were effective, the Company SEC Filings complied as to form in
all material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations promulgated
thereunder, and except to the extent that information contained in any Company
SEC Filings has been revised or superseded by a later Company SEC Filing filed
and publicly available prior to the date of this Agreement, did not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading. The financial
statements of the Company included in the Company SEC Filings complied as of
their respective dates of filing with the Commission as to form in all material
respects with applicable accounting requirements and with the published rules
and regulations of the Commission with respect thereto, were prepared in
accordance with generally accepted accounting principles (as in effect from time
to time) applied on a consistent basis during the periods involved (except as
may be indicated therein or in the notes thereto or, in the case of the
unaudited interim financial statements, as permitted by Form 10-Q of the
Commission) and present fairly the consolidated financial position, consolidated
results of operations and consolidated cash flows of the Company and the Company
Subsidiaries as of the dates and for the periods indicated, except (i) in the
case of unaudited interim consolidated financial statements, to normal recurring
year-end audit adjustments and any other adjustments described therein and (ii)
any pro forma financial information contained therein is not necessarily
indicative of the consolidated financial position of the Company and the Company
Subsidiaries as of the respective dates thereof and the consolidated results of
operations and cash flows for the periods indicated. No Company Subsidiary is
required to file any form, report or other document with the Commission. Except
as set forth in the Company Current Reports, and except for liabilities and
obligations incurred in the ordinary course of business consistent with past
practice, since the date of the most recent consolidated balance sheet included
in the Company Current Reports, neither the Company nor any Company Subsidiary
has any liabilities or obligations of any nature (whether accrued, absolute,
contingent or otherwise) required by generally accepted accounting principles to
be recognized or disclosed on a consolidated balance sheet of the Company and
the Company Subsidiaries or in the notes thereto which could reasonably be
expected to have a Material Adverse Effect on the Company. The pro forma
financial information (and related notes thereto) included in the
-33-
Company SEC Filings present fairly the information shown therein and were
prepared, as of the respective dates of filing of the Company SEC Filings with
the Commission, in accordance with the Commission's rules and guidelines with
respect to pro forma financial statements. The necessary pro forma adjustments
have been properly applied to the historical amounts in the compilation of such
pro forma financial information, the assumptions used in the preparation thereof
are reasonable and the adjustments used therein are appropriate to give effect
to the transactions and circumstances referred to therein.
4.11 Absence of Certain Changes or Events. Other than as disclosed in the
Company Current Reports or in Section 4.11 of the Company Disclosure Schedule,
since June 30, 1998 and through the date of this Agreement, the business of the
Company and of each of the Company Subsidiaries has been conducted in the
ordinary course, and there has not been (i) any Material Adverse Effect on the
Company; (ii) any material indebtedness incurred by the Company or any Company
Subsidiary for borrowed money, except under credit facilities disclosed in the
Company Current Reports, if any; (iii) any material transaction or commitment,
except in the ordinary course of business or as contemplated by this Agreement,
entered into by the Company or any of the Company Subsidiaries; (iv) any damage,
destruction or loss, whether covered by insurance or not, which, individually or
in the aggregate, would have a Material Adverse Effect on the Company; (v) any
change by the Company in accounting principles or methods except insofar as
required by a change in generally accepted accounting principles; (vi) any
declaration, setting aside or payment of any dividend (whether in cash,
securities or property) with respect to the Company Common Stock; (vii) any
material agreement to acquire any assets or stock or other interests of any
third-party; (viii) any increase in the compensation payable or to become
payable by the Company or any Company Subsidiary to any employees, officers,
directors, or consultants or in any bonus, insurance, welfare, pension or other
employee benefit plan, payment or arrangement made to, for or with any such
employee, officer, director or consultant (other than as provided in employment
agreements, consulting agreements and welfare and benefit plans set forth on the
Company Disclosure Schedule, and except for increases consistent with past
practice); (ix) any material revaluation by the Company or any Company
Subsidiary of any asset (including, without limitation, any writing down of the
value of inventory or writing off of notes or accounts receivable); (x) any
transfer, mortgage, pledge or disposition of any of the assets or properties of
the Company or any Company Subsidiary or the subjection of any of the assets or
properties of the Company or any Company Subsidiary to any Encumbrances, rights
or claims of others with respect thereto other than in the ordinary course
consistent with past practice; (xi) any assumption or guarantee by the Company
or a Company Subsidiary of the indebtedness of any person or entity, other than
in the ordinary course consistent with past practice; (xii) any split,
combination or reclassification of any of the capital stock of the Company or
any Company Subsidiary or any issuance or the authorization of any issuance of
any other securities in respect of, in lieu of or in substitution for shares of
such capital stock; (xiii) any receipt by the Company or any Company Subsidiary
of written or oral notice that any material contract, agreement or arrangement
to which it is a party has been or will be canceled; (xiv) any issuance by the
Company or any Company Subsidiary of any share of stock, bond, note, option,
warrant or other corporate security; (xv) any capital expenditure or
expenditures by the Company or any Company Subsidiary or commitment(s) to make
such capital expenditure(s) that individually exceeds $250,000, or in the
aggregate exceed
-34-
$500,000; (xvi) any payment or incurring of liability to pay any taxes,
assessments, fees, penalties, interest or other governmental charges, other than
those arising and discharged or to be discharged in the ordinary course of
business and consistent with past practice; (xvii) any loan or loans that
individually exceeds $250,000, or in the aggregate exceed $500,000, made by the
Company or any Company Subsidiary to any person, including but not limited to,
any employee, officer or director of the Company or any Company Subsidiary; or
(xviii) any authorization, approval, agreement or commitment by the Company or
any Company Subsidiary to take any action described in clauses (i) through
(xvii) above.
4.12 Employee Benefit Plans and Employment Matters.
(a) Section 4.12(a) of the Company Disclosure Schedule lists all
employee benefit plans, collective bargaining agreements, labor
contracts, and employment agreements not otherwise disclosed in the
Company Current Reports in which the Company or any Company Subsidiary
participates, or by which any of them are bound, including, without
limitation, (i) any profit sharing, deferred compensation, bonus,
stock option, stock purchase, pension, welfare, and incentive plan or
agreement; (ii) any plan providing for "fringe benefits" to their
employees, including, but not limited to, vacation, sick leave,
medical, hospitalization and life insurance; (iii) any written
employment agreement and any other employment agreement not terminable
at will; and (iv) any other "employee benefit plan" (within the
meaning of Section 3(3) of ERISA). The Company and the Company
Subsidiaries are in compliance in all material respects with the
requirements prescribed by all Laws currently in effect applicable to
employee benefit plans and to any employment agreements, including,
but not limited to, ERISA and the Code. The Company and the Company
Subsidiaries have each performed all of its obligations under all such
employee benefit plans and employment agreements in all material
respects. There is no pending or, to the knowledge of the Company,
threatened legal action, proceeding or investigation against or
involving any Company or Company Subsidiary employee benefit plan
which could result in a material amount of liability to such employee
benefit plan or to the Company, other than routine claims for benefits
involving less than $25,000 for each such routine claim and $100,000
for all such routine claims in the aggregate.
(b) Neither the Company nor the Company Subsidiaries sponsor or
participate in, and have not sponsored or participated in, any
employee pension benefit plan to which Section 4021 of ERISA applies
that would create a material amount of liability to the Company under
Title IV of ERISA.
(c) Neither the Company nor the Company Subsidiaries sponsor or
participate in, and have not sponsored or participated in, any
employee pension benefit plan that is a "multiemployer plan" (within
the meaning of Section 3(37) of ERISA).
(d) All group health plans of the Company and the Company
Subsidiaries have been operated in compliance with the group health
plan continuation coverage requirements of Section 4980B of the Code
in all material respects, to the extent such requirements are
applicable.
-35-
(e) There have been no acts or omissions by the Company or any
Company Subsidiary or by any fiduciary, disqualified person or party
in interest with respect to an employee benefit plan of the Company or
any Company Subsidiaries that have given rise to or could reasonably
be expected to give rise to a material amount of fines, penalties,
taxes, or related charges under Sections 502(c), 502(i) or 4071 of
ERISA or under Chapter 43 of the Code.
(f) No "reportable event," as defined in ERISA Section 4043,
other than those events with respect to which the Pension Benefit
Guaranty Corporation has waived the notice requirement, has occurred
with respect to any of the employee benefit plans of the Company.
(g) Section 4.12(g) of the Company Disclosure Schedule sets forth
the name of each director, officer or employee of the Company or any
Company Subsidiary entitled to receive any benefit or payment under
any existing employment agreement, severance plan or other benefit
plan solely as a result of the consummation of any transaction
contemplated by this Agreement, and with respect to each such person,
the identity of the specific agreement relating to such person, which
agreement the Company has previously provided to Acquiror.
(h) The Company has furnished Acquiror with true and correct
copies of all plan documents and employment agreements referred to on
the Company Disclosure Schedule, including all amendments thereto, and
all related summary plan descriptions to the extent that one is
required by Law.
(i) For purposes of this Section 4.12, any reference to the
"Company" shall be deemed to include a reference to any entity that is
aggregated with the Company under the provisions of Section 414 of the
Code, to the extent that those aggregation rules apply to any
representation made herein.
4.13 Labor Matters. Neither the Company nor any Company Subsidiary is a
party to any collective bargaining agreement with respect to any of their
employees. None of the employees of the Company or any Company Subsidiary is
represented by any labor union. To the knowledge of the Company, there is no
activity involving any employees of the Company or the Company Subsidiaries
seeking to certify a collective bargaining unit or engaging in any similar
organizational activity.
4.14 Insurance. The Company and the Company Subsidiaries maintain
insurance against such risks and in such amounts as the Company reasonably
believes are necessary to conduct its business. The Company and the Company
Subsidiaries are not in default with respect to any provisions or requirements
of any such policy, nor have any of them failed to give notice or present any
claim thereunder in a due and timely fashion, except for defaults or failures
which, individually or in the aggregate, would not have a Material Adverse
Effect on Company. Neither the Company nor any Company Subsidiary has received
any notice of cancellation or termination in respect of any of its insurance
policies.
-36-
4.15 Environmental Matters. Except as disclosed on Section 4.15 of the
Company Disclosure Schedule:
(a) The Company and the Company Subsidiaries have complied and
are in compliance with, and the real property owned, operated, leased
or used by the Company or the Company Subsidiaries as of June 30,
1998, any additional real property owned, operated, leased or used
since that date, and, for purposes of this Section 4.15, any real
property formerly owned or operated by the Company or any Company
Subsidiary (collectively, the "Company Real Property") and all
improvements thereon are in compliance with, all Environmental Laws,
except for such non-compliance as would not have a Material Adverse
Effect on the Company and would not be considered "material" under the
federal securities laws.
(b) Neither the Company nor any Company Subsidiary has any
liability under any Environmental Law, nor is the Company or any
Company Subsidiary responsible by contract, by operation of law,
otherwise for any liability of any other person under Environmental
Law, which either individually or in the aggregate would have a
Material Adverse Effect on the Company or would be considered
"material" under the federal securities laws. Except for matters which
would not have a Material Adverse Effect on the Company and would not
be considered "material" under the federal securities laws, there are
no pending or threatened actions, suits, orders, claims, legal
proceedings or other proceedings based on, and neither the Company nor
any Company Subsidiary, nor any officer, director or stockholder
thereof has directly or indirectly received any formal or informal
notice of any complaint, order, directive, citation, notice of
responsibility, notice of potential responsibility, or information
request from any Governmental Entity or any other person or entity or
knows or suspects any fact(s) which might reasonably form the basis
for any such actions or notices arising out of or attributable to: (i)
the current or past presence, Release, or threatened Release of
Hazardous Materials at or from any part of the Company Real Property;
(ii) the off-site disposal or treatment of Hazardous Materials
originating on or from the Company Real Property or the businesses or
assets of the Company or any Company Subsidiary; or (iii) any
violation of Environmental Laws at any part of the Company Real
Property or arising from the Company's or any Company Subsidiary's
activities (or the activities of the Company's or any Company
Subsidiary's predecessors in title) involving Hazardous Materials.
(c) Except as disclosed in Section 4.15(c) of the Company
Disclosure Schedule, the Company and the Company Subsidiaries have
been duly issued, and currently have and will maintain through the
Closing Date, all permits, licenses, certificates and approvals
required under any Environmental Law, each of which is valid and in
full force and effect. Except in accordance with such permits,
licenses, certificates and approvals, there has been no Release of
material regulated by such permits, licenses, certificates or
approvals at, on, under, or from the Company Real Property.
(d) Neither the Company nor any Company Subsidiary has provided
to any Governmental Entity, as required by Law, notice of any Release
from any underground improvements, including but not limited to
treatment or storage tanks, or underground piping
-37-
associated with such tanks, used currently or in the past for the management of
Hazardous Materials. No portion of the Company Real Property is or has been used
as a dump or landfill or consists of or contains filled in land or wetlands.
(e) No Encumbrance in favor of any person relating to or in
connection with any Claim under any Environmental Law has been filed
or has attached to the Company Real Property.
4.16 Tax Matters. Neither Company nor, to the knowledge of Company, any
of its affiliates has taken or agreed to take any action that would, nor does
Company have any knowledge of any fact or circumstance that is reasonably likely
to, prevent the Merger from qualifying as a reorganization under the provisions
of Section 368 (a) of the Code. The Company has paid, or made provision in
accordance with generally accepted accounting principles on its balance sheet at
December 31, 1997 included in the Company 10-K, for all federal, state, local,
foreign or other governmental income, franchise, payroll, F.I.C.A.,
unemployment, withholding, real property, personal property, sales, payroll,
disability and all other taxes imposed on the Company or any Company Subsidiary
or with respect to any of their respective properties, or otherwise payable by
them, including interest and penalties, if any, in respect thereof
(collectively, "Company Taxes"), for the Company taxable period ended December
31, 1997 and all fiscal periods of the Company prior thereto, except such
nonpayment, or failure to make provision, which, individually or in the
aggregate, would not have a Material Adverse Effect on the Company and except as
set forth in Section 4.16 to the Company Disclosure Schedule. The Company Taxes
paid and/or incurred from December 31, 1997 until the Closing Date shall include
only Company Taxes incurred in the ordinary course of business. The Company and
each of the Company Subsidiaries have timely filed all returns, reports and
certifications related to Company Taxes which the Company and/or such Company
Subsidiary (as the case may be) are required to file ("Company Tax Returns"),
and have paid or provided for all the amounts shown to be due thereon, except
where such failure to make such timely filings, individually or in the
aggregate, would not have a Material Adverse Effect on the Company, and except
for the nonpayment of such amounts which, individually or in the aggregate,
would not have a Material Adverse Effect on the Company. Neither the Company nor
any Company Subsidiary (i) has filed or entered into, or is otherwise bound by,
any currently effective election, consent or extension agreement that extends
any applicable statute of limitations with respect to taxable periods of the
Company, (ii) is a party to any contractual obligation requiring the
indemnification or reimbursement of any person with respect to the payment of
any Company Taxes, other than among the Company and the Company Subsidiaries, or
(iii) has received any claim by an authority in a jurisdiction where neither the
Company nor any Company Subsidiary files Company Tax Returns that they are or
may be subject to Company Taxes by that jurisdiction, except for any such claims
as, individually or in the aggregate, would not have a Material Adverse Effect
on the Company. No action or proceeding is pending or, to the Company's
knowledge, threatened orally to any Company officer or in writing by any
governmental authority for any audit, examination, deficiency, assessment or
collection from the Company or any Company Subsidiary of any Company Taxes, no
unresolved claim for any deficiency, assessment or collection of any Company
Taxes has been asserted against the Company or any Company Subsidiary, and all
resolved assessments of Company
-38-
Taxes have been paid or are reflected on the Company balance sheet at December
31, 1997 included in the Company 10-K, except for any of the foregoing which,
individually or in the aggregate, would not have a Material Adverse Effect on
the Company. The Company has not filed a consent under Section 341(f) of the
Code concerning collapsible corporations. The Company does not have any
liability for the taxes of any person other than the Company Subsidiaries (i)
under Treas. Reg. Section 1.1502-6 (or any similar provision of state, local or
foreign law), (ii) as a transferee or successor, (iii) by contract, or (iv)
otherwise.
4.17 Intellectual Property. Except as disclosed in Section 4.17 of the
Company Disclosure Schedule, the Company and the Company Subsidiaries own, or
are licensed or otherwise possess or have all necessary rights to use all
Intellectual Property which is used in the conduct of their respective
businesses (collectively, "Company Intellectual Property Rights"). To the
knowledge of the Company, neither the Company nor any Company Subsidiary is
infringing or otherwise violating the intellectual property rights of any person
which infringement or violation would subject the Company or any Company
Subsidiary to liabilities which, individually or in the aggregate, would have a
Material Adverse Effect on the Company or which would prevent the Company or any
Company Subsidiary from conducting their respective businesses substantially in
the manner in which they are now being conducted. No claim has been made or, to
the Company's knowledge, threatened against the Company or any Company
Subsidiary alleging any such violation. To the knowledge of the Company, there
is no unauthorized use, disclosure, infringement or misappropriation of any
Company Intellectual Property Rights or any Intellectual Property right of any
third party to the extent licensed by or through Company, by any third party,
including any employee or former employee of the Company, that could reasonably
be expected to have a Material Adverse Effect on the Company. The Company is
not, nor will it be as a result of the execution and delivery of this Agreement
or the performance of it obligations under this Agreement, in breach of any
license, sublicense or other agreement relating to the Company Intellectual
Property Rights or Third Party Intellectual Property Rights. The Company has not
advised any third party that such third party may be infringing any Company
Intellectual Property Rights or breaching any license or agreement involving
Company Intellectual Property Rights that could reasonably be expected to have a
Material Adverse Effect on Company.
4.18 Related Party Transactions. Except as disclosed in the Company SEC
Filings or in Section 4.18 of the Company Disclosure Schedule, there have been
no material transactions between the Company or any Company Subsidiary on the
one hand, and any (i) officer or director of the Company or any Company
Subsidiary, (ii) record or beneficial owner of five percent or more of the
voting securities of the Company or (iii) affiliate (as such term is defined in
Regulation 12b-2 promulgated under the Exchange Act) of any such officer,
director or beneficial owner, on the other hand, other than payment of
compensation for services rendered to the Company or the Company Subsidiaries or
the grant of stock options to purchase shares of Company Common Stock.
4.19 No Undisclosed Material Liabilities. Except as disclosed in the
Company Current Reports, neither the Company nor any of the Company Subsidiaries
has incurred any liabilities of any kind whatsoever, whether accrued,
contingent, absolute, determined, determinable or
-39-
otherwise, that, individually or in the aggregate, would have a Material Adverse
Effect on the Company other than (i) liabilities incurred in the ordinary course
of business consistent with past practice since June 30, 1998 and identified in
Schedule 4.19 of the Company Disclosure Schedule or the Company SEC Filings,
(ii) liabilities that have been repaid, discharged or otherwise extinguished and
(iii) liabilities under or contemplated by this Agreement.
4.20 No Default. Except as set forth in Section 4.20 of the Company
Disclosure Schedule, neither the Company nor any of the Company Subsidiaries is
in default or violation (and no event has occurred which with notice or the
lapse of time or both would constitute a default or violation) of any term,
condition or provision of (i) its certificate or articles of incorporation or
bylaws or other organizational documents, (ii) any Laws applicable to the
Company or any Company Subsidiary or by which any of their respective properties
is bound or affected, or (iii) any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which the Company or any Company Subsidiary is a party or by which the
Company or any Company Subsidiary or any of their respective properties or
assets is bound or affected, except in the case of clauses (ii) and (iii) above
for defaults or violations which would not have a Material Adverse Effect on the
Company.
4.21 Title to Properties; Encumbrances. Section 4.21 of the Company
Disclosure Schedule sets forth all real property owned or leased by the Company
and the Company Subsidiaries (the "Company Real Property"), indicating which
facilities are owned and which are leased. Except as disclosed in the Company
Current Reports and as described in clause (ii) below: (i) each of the Company
and the Company Subsidiaries has good, valid and marketable title to, or a valid
leasehold interest in, as applicable, all of its properties and assets (real,
personal and mixed, tangible and intangible), including, without limitation, all
Company Real Property and all other properties and assets reflected in the
consolidated balance sheet of the Company and the Company Subsidiaries at June
30, 1998 included in the Company Form 10-Q for the quarter ended June 30, 1998
(except for properties and assets disposed of in the ordinary course of business
and consistent with past practice since June 30, 1998) and (ii) none of such
properties or assets are subject to any liability, obligation, claim, lien,
mortgage, pledge, security interest, conditional sale agreement, charge or
encumbrance of any kind (whether absolute, accrued, contingent or otherwise),
except for liens securing repayment of indebtedness incurred in the ordinary
course consistent with past practice subsequent to June 30, 1998 and liens for
taxes not yet due and payable, unrecorded and undelivered mortgages between a
Company Subsidiary and a joint venture entity in which the Company is a limited
partner or a managing member (as identified in Section 4.21 of the Company
Disclosure Schedule) and easements and restrictions of record, if any, which are
not substantial in amount, do not materially detract from the value of the
property or assets subject thereto and do not impair the operations of the
Company and the Company Subsidiaries. Each of the leases is in full force and
effect and there is no default by landlord or tenant existing thereunder (and no
event has occurred which, with or without notice or the passage of time or both,
would constitute a default under such lease) which would have a Material Adverse
Effect on the Company. Except as set forth in Section 4.21 of the Company
Disclosure Schedule, the Company and the Company Subsidiaries have obtained
owner's title insurance on all of the Company Real Property owned by the Company
or any
-40-
Company Subsidiary, in each case insuring good and marketable fee simple title
to such Company Real Property, in an amount at least equal to the aggregate
value of such Company Real Property together with all improvements thereon.
Except as set forth in Section 4.21 of the Company Disclosure Schedule, there
are no mechanics' or materialmen's liens or liens of a similar nature in
existence with respect to any on-going construction activities involving any of
the Company Real Property that, with respect to each such construction activity,
exceeds $50,000 individually, or $200,000 in the aggregate. Except as would not
cause a Material Adverse Effect on the Company, all of the properties and assets
of the Company and the Company Subsidiaries are in good operating condition and
repair, and maintenance thereon has not been deferred beyond industry standards,
and are suitable for the purposes for which they are presently being used.
4.22 Brokers. Neither the Company nor any Company Subsidiary has paid or
is obligated to pay any brokerage, finders or other fee or commission to any
broker, finder, investment banker or other intermediary in connection with this
Agreement or the Option Agreement, except that Company has retained BT Alex.
Brown Incorporated ("BT Alex. Brown") as its financial advisor for the
transactions contemplated hereby, pursuant to an engagement letter a copy of
which (as executed by all the parties thereto) has been provided previously to
Acquiror.
4.23 Opinion of Financial Advisor. The Board of Directors of the Company
has received the opinion of BT Alex. Brown to the effect that, as of the date of
this Agreement, the Exchange Ratio is fair to the holders of Company Common
Stock, from a financial point of view, a written copy of which (as executed)
will be provided to Acquiror promptly after receipt thereof by the Company.
4.24 Acquiror Stock Ownership. Except as contemplated pursuant to the
terms of this Agreement and the transactions to be consummated hereby or by the
Option Agreement, neither the Company nor any of the Company Subsidiaries own
any shares of Acquiror Common Stock or rights to acquire or dispose of Acquiror
Common Stock.
4.25 Voting Requirements. The affirmative vote of the holders of
two-thirds of the outstanding shares of Company Common Stock at the Company
Stockholders' Meeting (as defined in Section 5.1(a)) to adopt this Agreement is
the only vote of the holders of any class or series of the Company's capital
stock necessary to approve and adopt this Agreement and the transactions
contemplated hereby under the OGCL and otherwise.
4.26 State Takeover Statutes. The Ohio Control Share Acquisition Statute
does not apply to the execution, delivery and performance of this Agreement or
the Option Agreement or the transactions contemplated hereby or thereby. To the
knowledge of Company, no Laws that would reasonably be considered a state
takeover or anti-takeover law are applicable to the execution, delivery and
performance of this Agreement or the Option Agreement or the transactions
contemplated hereby or thereby.
-41-
4.27 Requested Information; Material Contracts.
(a) The Company has provided all documents, materials, schedules
and other information in response to the requests for such documents,
materials, schedules and other information from Acquiror identified in
Section 4.27(a) of the Company Disclosure Schedule.
(b) Each existing contract, agreement, arrangement or
understanding of the Company or any of the Company Subsidiaries,
including contracts, agreements, arrangements or understandings
(whether oral or written) between the Company or any of the Company
Subsidiaries, on the one hand, and one or more persons who are
affiliates of each other, on the other hand, involving, or reasonably
expected to involve, aggregate payments or commitments of more than
$250,000 during the 12-month period ended June 30, 1998 or during the
remaining term thereof (the "Company Material Contracts"), is in full
force and effect and constitutes a legal, valid and binding obligation
of, and is legally enforceable against, the respective parties
thereto. All necessary approvals of any Governmental Entity with
respect thereto have been obtained (except where the failure so to
obtain any such approval would not have a Material Adverse Effect on
the Company), all necessary filings or registrations therefor have
been made, and there are no outstanding disputes thereunder and, to
the knowledge of the Company or any of the Company Subsidiaries, no
threatened cancellation or termination thereof. The Company and each
of the Company Subsidiaries have performed all material obligations
thereunder required to be performed by any of them to date. No party
is in default in any material respect under any of the Company
Material Contracts, and there has not occurred any event which
(whether with or without notice, lapse of time or the happening or
occurrence of any other event) would constitute such a default. There
has been no written or oral modification or amendment to any Company
Material Contract and there are no reasonably expected changes to any
Company Material Contract.
4.28 Receivables. To the knowledge of the Company, all receivables shown
as receivables in the most recent consolidated balance sheet included in the
Company Current Reports, or thereafter acquired by the Company, are collectible,
and all appropriate reserves or allowances relating to such receivables have
been properly accrued.
4.29 Books and Records. The books of account, stock records, minute books
and other records of the Company and the Company Subsidiaries are complete and
correct, and the Company has devised and maintained a system of internal
accounting controls sufficient to provide the reasonable assurances enumerated
in Section 13(b)(2)(B) of the Exchange Act.
4.30 No Excess Parachute Payments. Except as set forth in Section 4.30 of
the Company Disclosure Schedule, no amount that could be received (whether in
cash or property or the vesting of property) as a result of any of the
transactions contemplated by this Agreement by any employee, officer or director
of the Company or any of its affiliates who is a "disqualified individual" (as
such term is defined in Section 280G(c) of the Code) under any employment,
severance or termination agreement, other compensation arrangement or
-42-
Company Option Plan or Other Company arrangement currently in effect would be an
"excess parachute payment" (as such term is defined in Section 280G(b)(1) of the
Code).
4.31 Change of Control Provisions. Except to the extent described in
Section 4.31 of the Company Disclosure Schedule, neither the consummation of the
Merger nor the execution, delivery or performance of this Agreement, the Option
Agreement, or the other transactions contemplated hereby or thereby, will
trigger or constitute a "change in control" or "change of control" or similar
event under any provision of any contract or agreement to which the Company or
any Company Subsidiary is a party.
4.32 Franchise Activities. To the knowledge or the Company, neither the
Company nor any Company Subsidiary has violated any applicable federal or state
Laws regulating franchises or business opportunities, including registration and
disclosure requirements under such Laws, the violation of which could result in
a Material Adverse Effect on the Company. Neither the Company nor any Company
Subsidiary has violated or is currently violating any franchise agreement or
other agreement relating to its franchise activities. All franchise offering
circulars used by the Company or any Company Subsidiary comply as to form in all
material respects with all applicable federal and state Laws, are deemed an
acceptable form of disclosure document in all states which have in effect
franchise registration and disclosure Laws or other applicable business
opportunity Laws, are accurate and complete in all material respects and do not
contain any untrue statement of a material fact or omit to state any material
fact necessary, in light of the circumstances under which it was made, in order
to make the statements therein not misleading. Neither the Company nor any
Company Subsidiary is subject to a currently effective injunctive or restrictive
order relating to franchises or business opportunities under a federal or state
franchise, business opportunity, antitrust, trade regulation or trade practice
Law resulting from a concluded or pending action or proceeding brought by a
Governmental Entity.
4.33 Disclosure. Neither (i) the representations or warranties by the
Company contained in this Agreement or the Option Agreement, or the statements
contained in the Company Disclosure Schedule or any other document, certificate
or other instrument delivered to or to be delivered by or on behalf of the
Company or required to be filed by the Company or any Company Subsidiary with
any Governmental Entity in connection with or pursuant to this Agreement, the
Option Agreement and all other documents contemplated hereby and thereby, nor
(ii) the information supplied or to be supplied by or on behalf of the Company
or any Company Subsidiary to any person for inclusion in any document or
application filed or to be filed with any Governmental Entity in connection with
the transactions contemplated by this Agreement, the Option Agreement and all
other documents contemplated hereby and thereby, contains or will contain any
untrue statement of a material fact or omits or will omit to state any material
fact necessary, in light of the circumstances under which it was or will be
made, in order to make the statements herein or therein not misleading or to
correct a prior statement. All documents required to be filed by the Company or
any Company Subsidiary with any Governmental Entity in connection with this
Agreement, the Option Agreement and all other documents contemplated hereby or
thereby or the transactions contemplated hereunder or thereunder will comply in
all material respects with the provisions of applicable Law.
-43-
ARTICLE V
COVENANTS AND AGREEMENTS
5.1 Proxy Statement/Prospectus; Registration Statement; Stockholders'
Meeting.
(a) The Company hereby agrees that this Agreement shall be
submitted to its shareholders for approval and adoption at a meeting
duly called and held pursuant to the OGCL (the "Company Shareholders'
Meeting"). As soon as practicable after the date of this Agreement,
the Company shall take all action, to the extent necessary in
accordance with applicable law and its charter and bylaws, to convene
the Company Shareholders' Meeting promptly to consider and vote upon
the approval of the Merger and such other matters as may be necessary
or desirable to consummate the Merger and the transactions
contemplated hereby. As soon as practicable (but in no case longer
than 45 days) after the date of this Agreement, Company and Acquiror
shall jointly prepare and file with the Commission, subject to the
prior approval of the other party, which approval shall not be
unreasonably withheld, preliminary proxy materials relating to such
Company Shareholders' Meeting as required by the Exchange Act, and a
registration statement on Form S-4 (as amended or supplemented, the
"Registration Statement") relating to the registration under the
Securities Act of the shares of Acquiror Common Stock issuable to the
holders of the Company Shares. Acquiror shall also promptly prepare
and file with state securities administrators, such registration
statements or other documents as may be required (other than
qualification to do business in any jurisdiction in which it is not
now so qualified and other than general consent to service of process)
under applicable blue sky laws to qualify or register the shares of
Acquiror Common Stock issuable to the holders of the Company Shares
(the "Blue Sky Filings"). The Company, Merger Sub and Acquiror will
use their respective best efforts to cause the Registration Statement
to be declared effective under the Securities Act as soon as
practicable. Promptly after the Registration Statement has become
effective and all applicable blue sky laws have been complied with,
the Company and Acquiror shall mail the proxy statement/prospectus
included in the Registration Statement to the Company's shareholders.
Such proxy statement/prospectus at the time it initially is mailed to
the shareholders of the Company and all duly filed supplements,
amendments or revisions made thereto, if any, similarly mailed are
hereinafter referred to as the "Proxy Statement." Notice of the
Company Shareholders' Meeting shall be mailed to the shareholders of
the Company along with the Proxy Statement.
(b) The information supplied by the Company for inclusion in the
Registration Statement shall not, at the time the Registration
Statement is declared effective, contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein not
misleading. The information supplied by the Company for inclusion in
the Proxy Statement to be sent to the shareholders of the Company in
connection with the Company Shareholders' Meeting to consider the
Merger shall not, at the date the Proxy Statement (or any amendment
thereof or supplement thereto) is first mailed to shareholders or at
the time of such Meeting, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in the light of
the circumstances under which they are made, not
-44-
misleading. The information supplied by Acquiror for inclusion in the
Registration Statement shall not, at the time the Registration
Statement is declared effective, contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein not
misleading.
(c) Each party covenants and agrees that (i) if, at any time
prior to the Effective Time, any event relating to it or any of its
affiliates, officers or directors is discovered that is required to be
set forth in an amendment to the Registration Statement or Blue Sky
Filings or a supplement to the Proxy Statement, such party will
promptly inform the other parties, and such amendment or supplement
will be promptly filed with the Commission and appropriate state
securities administrators and disseminated to the shareholders of the
Company, to the extent required by applicable federal and state
securities laws, and (ii) documents which either party files or is
responsible for filing with the Commission and any regulatory agency
in connection with the Merger (including, without limitation, the
Proxy Statement) will comply as to form and content in all material
respects with the provisions of applicable law.
(d) The Company hereby represents that its Board of Directors
has, (i) determined that the Merger is fair to and in the best
interests of the Company's shareholders, (ii) approved the Merger and
approved and adopted this Agreement and (iii) resolved to and will
recommend in the Proxy Statement adoption of this Agreement and
authorization of the Merger by the shareholders of the Company unless
following an announcement or receipt by the Company of a proposal for
a Third Party Transaction (as defined below) such Board of Directors
(A) is advised in writing by independent outside counsel to the
Company that such resolution and recommendation violate such fiduciary
duties of directors as are applicable under Ohio law because of such
proposal for a Third Party Transaction and (B) concludes based on such
advice that such resolution and recommendation violate such fiduciary
duties as are applicable under Ohio law because of such proposal for a
Third Party Transaction.
(e) The Company shall use its best efforts to cause to be
delivered to Acquiror a letter of Ernst & Young ("E&Y"), the Company's
independent accountants, dated a date within two (2) business days
before the date on which the Registration Statement shall become
effective, addressed to Acquiror, of the kind contemplated by the
Statement of Auditing Standards with respect to Letters to
Underwriters promulgated by the American Institute of Certified Public
Accountants (the "AICPA Statement"), in form and substance reasonably
satisfactory to Acquiror and customary in scope and substance for
letters delivered by independent public accountants in connection with
registration statements similar to the Registration Statement (the
"E&Y Comfort Letter"). Acquiror shall use its best efforts to cause to
be delivered to the Company a letter of E&Y, Acquiror's independent
accountants, dated a date within two (2) business days before the date
on which the Registration Statement shall become effective, addressed
to the Company, of the kind contemplated by the AICPA Statement, in
form and substance reasonably satisfactory to the Company and
customary in scope and substance for letters delivered by independent
public accountants in connection with registration statements similar
to the Registration Statement (also an "E&Y Comfort Letter").
-45-
5.2 Conduct of the Business of the Company Prior to the Effective Time.
Prior to the Effective Time, except as set forth in Section 5.2 of the Company
Disclosure Schedule or otherwise consented to or approved in writing by
Acquiror, or expressly permitted or contemplated by this Agreement or the Option
Agreement:
(a) The Company shall, and shall cause each Company Subsidiary to,
conduct their respective businesses only in the ordinary course and
consistent in all material respects with past practice, and in compliance
in all material respects with all applicable Laws and regulations, and
shall use their respective best efforts to preserve substantially intact
their respective business organizations and assets, to keep available the
services of their present officers, employees and consultants and to
maintain their present relationships with customers, suppliers, payors
and other persons with whom they have a significant business
relationship; provided, however, that the loss of any officer, employee,
consultant, customer, payor or supplier prior to the Effective Time shall
not constitute a breach of this covenant unless such loss would have a
Material Adverse Effect on the Company;
(b) The Company shall not, and shall cause the Company Subsidiaries
not to, (i) amend their respective charters or bylaws or other
organizational documents, (ii) declare, set aside or pay any dividend or
other distribution, payable in cash, securities or property, in respect
of outstanding shares of capital stock, except for dividends by a Company
Subsidiary to the Company or another Company Subsidiary, (iii) make any
direct or indirect redemption, retirement, purchase or other acquisition
of any of their respective capital stock or any securities or obligations
convertible into or exchangeable for any shares of their respective
capital stock (other than any such acquisition directly from any wholly
owned Company Subsidiary in exchange for capital contributions or loans
to such Company Subsidiary) or any options, warrants or conversion or
other rights to acquire any shares of the Company's or any Company
Subsidiary's capital stock or any such securities or obligations (except
(A) in connection with the exercise of outstanding stock options referred
to in Section 4.2 in accordance with their terms, and (B) if required by
an existing written agreement identified in Section 5.2(b) of the Company
Disclosure Schedule, a copy which has been provided to Acquiror prior to
the date hereof), or (iv) reclassify, combine, split or subdivide any of
their respective outstanding shares of capital stock;
(c) The Company shall not, and shall cause each Company Subsidiary
not to, directly or indirectly, (i) issue, grant, sell or pledge or agree
or propose to issue, grant, sell or pledge any shares of, or rights or
securities of any kind to acquire any shares of, the capital stock of the
Company or such Company Subsidiary, except that the Company may issue
shares of Company Common Stock upon the exercise of stock options
outstanding on the date hereof pursuant to the terms thereof existing as
of the date hereof or issued hereafter in accordance herewith, (ii) other
than in the ordinary course of business and consistent with past practice
incur any indebtedness for borrowed money, except under credit facilities
existing as of the date hereof and as they may be amended from time to
time or pursuant to a substitute credit facility on terms comparable to
such
-46-
existing credit facilities, (iii) modify, amend or terminate any material
contract or agreement to which the Company or any Company Subsidiary is a
party, or waive, release, grant or transfer any rights of material value,
(iv) merge, consolidate, combine or enter into any similar transaction
with any person or adopt a plan of liquidation or dissolution, (v)
acquire (or enter into an agreement to acquire) any assets, stock or
other interests of a third-party, (vi) transfer, lease, license, sell or
dispose of a material portion of assets or any material assets, other
than in the ordinary course of business, consistent with past practice
and not involving more than $25,000 in any one transaction or series of
related transactions, but not more than $250,000 in the aggregate, (vii)
change any accounting principles or methods except insofar as may be
required by changes in generally accepted accounting principles, (viii)
other than in the ordinary course of business consistent with past
practice, mortgage or pledge any of their assets or properties or subject
any of their assets or properties to any material liens, charges,
encumbrances, imperfections of title, security interests, options or
rights or claims of others with respect thereto (and shall maintain such
assets in good condition, reasonable wear and tear excepted), (ix) enter
into any joint venture, affiliation, partnership or similar agreement,
(x) make any tax election or settle or compromise any tax liability, (xi)
enter into any contracts, agreements, arrangements or understandings
relating to the distribution, sale or marketing by third parties of the
Company's, or any Company Subsidiary's services or services performed on
behalf of the Company or any Company Subsidiary, (xii) make or agree to
make any new unbudgeted capital expenditure or expenditures which was not
disclosed in Section 5.2(c) of the Company Disclosure Schedule and which,
individually, is in excess of $25,000 or, in the aggregate, are in excess
of $250,000, (xiii) pay, discharge, settle or satisfy any claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise) other than in the ordinary course of business
consistent with past practice or in accordance with their terms, of
liabilities reflected in the most recent consolidated financial
statements (or the notes thereto) of the Company included in the Company
Current Reports or incurred in the ordinary course of business consistent
with past practice, or waive any material benefits of, or agree to modify
in any material respect, any confidentiality, standstill or similar
agreements to which the Company or any Company Subsidiary is a party,
(xiv) convert or exchange any floating rate indebtedness into fixed rate
indebtedness or make any modifications to existing indebtedness that
would have a similar effect, or (xv) enter into any other contracts,
agreements, arrangements or understandings that are not terminable
without penalty upon 30 or fewer days' notice or that involve payment by
the Company or any Company Subsidiary of $25,000 over the term of the
specific contract, agreement, arrangement or understanding or $250,000 in
the aggregate over the term of all contracts, agreements, arrangements or
understandings;
(d) The Company shall not, and shall cause each Company Subsidiary
not to, directly or indirectly (except, in any such case, as may be
required by applicable Law), (i) increase the compensation payable or to
become payable by it to any of its officers or directors (except in
accordance with employment or other agreements and welfare and benefit
plans set forth on the Company Disclosure Schedule), (ii) increase the
compensation payable or to become payable by it to any of its employees
or consultants
-47-
(except in accordance with employment or consulting agreements and
welfare and benefit plans set forth on the Company Disclosure Schedule
and normal increases in salary to employees other than executive officers
in the ordinary course of business consistent with past practice), (iii)
establish, enter into, adopt or amend any stock option, stock purchase,
profit sharing, pension, retirement, deferred compensation, restricted
stock or severance plan, agreement or arrangement for the benefit of
employees, officers, directors or consultants of the Company or any
Company Subsidiary, except for annual stock option grants required by
pre-existing contractual obligations of the Company under agreements that
are specifically identified on the Company Disclosure Schedule and that
were previously furnished to Acquiror by the Company and except for
specific agreements under the Key Employee Severance Policy that are
listed on the Company Disclosure Schedule and that were previously
furnished to Acquiror by the Company, (iv) enter into or amend any
employment or consulting agreement, (v) make any loan or advance to, or
enter into any written contract, lease or commitment with, any officer or
director of the Company or any Company Subsidiary, or (vi) make any loan
or advance to, or enter into any written contract, lease or commitment
with, any employee or consultant of the Company or any Company
Subsidiary, except for advances to new employees or consultants and offer
letters presented to new employees or consultants in the ordinary course
of business which are in an amount not to exceed $75,000 per employee or
consultant and do not exceed $250,000 in the aggregate;
(e) The Company shall not, and shall cause each Company Subsidiary
not to, directly or indirectly, assume, guarantee, endorse or otherwise
become responsible for the obligations of any other individual,
corporation or other entity, or make any loans or advances to any
individual, corporation or other entity;
(f) The Company shall not, and shall cause each Company Subsidiary
not to, intentionally take any action that (without regard to any action
taken or agreed to be taken by Acquiror or any Acquiror Subsidiary) would
prevent the Merger from qualifying as a reorganization within the meaning
of Sections 368(a) of the Code or that would result in the conditions set
forth in clause (iii) of Sections 6.1(h) and (i) not being true;
(g) The Company shall not, and shall cause each Company Subsidiary
not to, take any action or fail to take any action which could reasonably
be expected to have a Material Adverse Effect on the Company prior to or
after the Effective Time, or that could reasonably be expected to
adversely effect the ability of the Company prior to the Effective Time
to obtain any Third Party Consents (as defined in Section 5.10(a))
required to consummate the transactions contemplated by this Agreement;
(h) From the date hereof until the Effective Time, the Company
shall, and shall cause each Company Subsidiary to, (a) accurately
prepare and timely file (taking into account any extension of time
within which to file) with the relevant taxing authority all Company
Tax Returns ("Company Post-Signing Returns") required to be filed, (b)
timely pay all taxes shown as due and payable on the Company
Post-Signing Returns, (c) pay or otherwise make adequate provision for
all taxes payable by the
-48-
Company and the Company Subsidiaries for which no Company Post-Signing
Return is due prior to the Effective Time, and (d) promptly notify
Acquiror of any action, suit, proceeding, claim or audit pending against
or with respect to the Company or any Company Subsidiary in respect of
any taxes; and
(i) The Company shall not, and shall cause each Company Subsidiary
not to, authorize, commit to, agree to, or enter into any agreement or
understanding to do any of the things prohibited by clauses (a) through
(h) of this Section 5.2.
5.3 Conduct of the Business of Acquiror Prior to the Effective Time.
Prior to the Effective Time, except as set forth in Section 5.3 of the Acquiror
Disclosure Schedule or otherwise consented to or approved in writing by the
Company, which consent shall not be unreasonably withheld or delayed, or
expressly permitted or contemplated by this Agreement or the Option Agreement:
(a) Acquiror shall, and shall cause the Acquiror Subsidiaries to,
conduct their respective businesses (to the extent commercially
reasonable) only in the ordinary course and consistent in all material
respects with past practice, and in compliance in all material respects
with all applicable Laws and regulations, and shall use their respective
best efforts to preserve substantially intact their respective business
organizations and assets;
(b) Acquiror shall not, and shall cause each Acquiror Subsidiary not
to, intentionally take any action that (without regard to any action
taken or agreed to be taken by the Company or any Company Subsidiary)
would prevent the Merger from qualifying as a reorganization within the
meaning of Sections 368(a)(1)(A) or 368(a)(2)(E) of the Code or that
would result in the conditions set forth in clause (iii) of Sections 6.1
(h) and (i) not being true;
(c) Acquiror shall not, and shall cause each Acquiror Subsidiary not
to, take any action or fail to take any action which could reasonably be
expected to have a Material Adverse Effect on Acquiror prior to or after
the Effective Time, or that could reasonably be expected to adversely
effect the ability of Acquiror prior to the Effective Time to obtain any
Third Party Consents required to consummate the transactions contemplated
by this Agreement.
(d) Acquiror shall not enter into any transaction contemplating the
acquisition of Acquiror (an "Acquisition Transaction") which would
reasonably be expected to materially delay the timing of the Company
Shareholders' Meeting or the Closing Date, unless Acquiror's Board of
Directors (A) is advised in writing by outside counsel to the Acquiror
that the failure to enter into such transaction would cause the members
of the Board of Directors to breach such fiduciary duties as are
applicable under Delaware law and (B) concludes based on such advice that
the failure to enter into such transaction would cause the members of
such Board of Directors to breach such fiduciary duties as are applicable
under Delaware law; provided, however, that, so long as the Company is
not in material breach of any provision of this Agreement, if
-49-
Acquiror intends to enter into an Acquisition Transaction consistent with
this subparagraph (d) that would cause Acquiror to merge into or
consolidate with another Person or become a subsidiary of another Person
in a transaction in which stockholders of Acquiror receive securities or
other property from another Person (1) Acquiror agrees to use its best
efforts to make adequate provision in such Acquisition Transaction for
shareholders of the Company to be entitled to receive, in lieu of
Acquiror Common Stock as provided in Article II, the same type of
securities or other property from another Person that the stockholders of
Acquiror would so receive from such other Person, giving effect to the
Exchange Ratio but using as the trading period for calculation of the
Average Trading Price of Acquiror Common Stock the ten (10) day trading
period ending three trading days prior to the Acquiror's execution and
delivery of the definitive agreement for such Acquisition Transaction and
(2) if Acquiror executes and delivers a definitive agreement with respect
to an Acquisition Transaction, then Acquiror agrees to waive as of the
date of the execution and delivery of such definitive agreement Sections
6.3(b) and (c) and the corresponding provisions of Section 6.3(d) so long
as (x) Sections 6.3(b) and (c) are satisfied as of the date of such
execution and delivery of such definitive agreement, (y) as of such date,
it may reasonably be expected that such conditions would continue to be
satisfied as of the date the Closing hereunder would reasonably have been
expected to occur absent any delay occasioned by such Acquisition
Transaction and (z) the Company agrees to waive at the time of such
waiver Sections 6.2(b) and (c) and the corresponding provisions of
Section 6.2(d).
(e) Acquiror shall not, and shall cause each Acquiror Subsidiary not
to, authorize commit to, agree to, or enter into any agreement or
understanding to do any of the things prohibited by clauses (a) through
(d) of this Section 5.3.
5.4 Access to Properties and Records. To the extent permitted by
applicable Law and subject to the terms of the confidentiality agreements dated
October 6, 1998 and October 8, 1998, respectively, between the Company and
Acquiror (the "Confidentiality Agreements"), each party shall, and shall cause
its respective subsidiaries to, afford to the other party and their respective
accountants, counsel and representatives ("Respective Representatives"),
reasonable access during normal business hours upon reasonable prior notice
throughout the period prior to the Effective Time to all of their respective
properties (including, without limitation, access to books, contracts,
commitments, written records and the right to enter and inspect real property)
and shall make reasonably available during normal business hours upon reasonable
prior notice their respective officers and employees to answer fully and
promptly questions put to them thereby; provided, however, that no investigation
or review (including any investigation or review of real property) pursuant to
this Section 5.4 shall alter any representation or warranty of any party hereto
or the conditions to the obligations of the parties hereto or have any effect
for purposes of determining the accuracy of any representation or warranty given
by any party hereto to the other parties hereto. Each of the Company and
Acquiror will hold, and will cause its Respective Representatives to hold, any
nonpublic information in accordance with the terms of the Confidentiality
Agreements.
-50-
5.5 No Solicitation of Transactions.
(a) None of the Company or any Company Subsidiary shall, or shall
authorize or permit any of its officers, directors or employees or any
investment banker, financial advisor, attorney, accountant or other
representative or agent retained by the Company or any Company
Subsidiary to, initiate or solicit or encourage (including by way of
furnishing non-public information), or take any other action to
facilitate, any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, any Third Party
Transaction (as such term is defined below in this Section 5.5), or
enter into or maintain or continue discussions or negotiate with any
person or entity in furtherance of such inquiries or to obtain a Third
Party Transaction; provided, however, that, commencing 120 days after
the date of this Agreement and continuing until the Closing Date, the
Company may, and may authorize and permit its officers, directors,
employees or agents to, furnish or cause to be furnished confidential
or other non-public information and may participate in such
discussions and negotiations if the Company's Board of Directors (A)
is advised in writing by independent outside counsel to the Company
that the failure to furnish such confidential or other non-public
information or to participate in such discussions and negotiations
would cause the members of the Board of Directors to breach such
fiduciary duties as are applicable under Ohio law and (B) concludes
based on such advice that the failure to furnish such confidential or
other non-public information or to participate in such discussions and
negotiations would cause the members of such Board of Directors to
breach such fiduciary duties as are applicable under Ohio law;
provided, further, however, that at least 72 hours prior to furnishing
any such confidential or other non-public information, the Company
shall furnish copies of all such information to Acquiror, together
with any inquiries, proposals, bids, offers or other documentation
received by the Company from the party or parties to whom such
confidential or other non-public information is to be furnished by the
Company and information as to the identity of such party or parties.
Except in circumstances in which the immediately preceding proviso
applies, in which event such proviso shall govern, the Company shall
immediately notify Acquiror orally and in writing of all relevant
details relating to all proposals which it or any Company Subsidiary
or any such officer, director, employee, investment banker, financial
advisor, attorney, accountant or other representative may receive
relating to any of such matters and, if such inquiry or proposal is in
writing, the Company shall forthwith deliver to Acquiror a copy of
such inquiry or proposal.
(b) For purposes of this Agreement, "Third Party Transaction"
shall mean any of the following other than transactions between
Acquiror, Merger Sub and the Company contemplated in this Agreement:
(i) any merger, consolidation, share exchange, business combination,
recapitalization or other similar transaction involving the Company or
any of its subsidiaries; (ii) any sale, exchange, transfer or other
disposition of 20% or more of the assets of the Company and its
subsidiaries, taken as a whole, in a single transaction or series of
transactions; (iii) any sale of or tender offer or exchange offer for
20% or more of the outstanding shares of capital stock of the Company
or the filing of a registration statement under the Securities Act in
connection therewith; (iv) any person acquiring beneficial ownership
or the right to acquire beneficial ownership of, or any "group" (as
such term is defined under Section 13(d) of the Exchange Act and the
rules and regulations promulgated thereunder) having been
-51-
formed for the purpose of effecting a Third Party Transaction referred
to in Sections 5.5(b)(i), (ii) or (iii) which beneficially owns or has
the right to acquire beneficial ownership of, 20% or more of the then
outstanding shares of capital stock of the Company; or (v) any public
announcement by such party of a proposal, plan or intention to do any
of the foregoing or any agreement to engage in any of the foregoing
with respect to the Company or any communication to the Company of any
proposal, plan or intention to do any of the foregoing.
5.6 Compliance by Merger Sub; Conduct of Business by Merger Sub. Acquiror
shall take all action necessary to cause Merger Sub to perform its obligations
hereunder (including, but not limited to, consummation of the Merger) and to
otherwise comply with the terms hereof. Merger Sub shall not conduct any
business between the date of this Agreement and the Closing Date, other than to
consummate the Merger and the transactions contemplated by this Agreement.
5.7 Treatment of Options.
(a) The Company shall use its best efforts to deliver to
Acquiror, on or immediately prior to the Effective Time, either (1)
new option agreements evidencing the consent of each holder of a
Company Stock Option to have such Company Stock Option assumed by
Acquiror and to become an option to acquire Acquiror Common Stock or
(2) the opinion of Company's counsel called for by clause (B) of
Section 6.3(h). Each Company Stock Option issued pursuant to the
Company's 1996 Incentive Stock Plan, as amended or issued other than
pursuant to such plan as set forth in the Company Disclosure Schedule
(the "Company Option Plans"), whether or not vested or exercisable,
shall, subject to execution and delivery of a new option agreement by
the holder, be assumed by Acquiror and shall constitute an option to
acquire, on the same terms and conditions as were applicable under
such assumed Company Stock Option, a number of shares of Acquiror
Common Stock equal to the product of the Exchange Ratio and the number
of shares of Company Common Stock subject to such Company Stock Option
(rounded to the nearest whole number of shares of Acquiror Common
Stock), at a price per share equal to the aggregate exercise price for
the shares of Company Common Stock subject to such Company Stock
Option divided by the number of whole shares of Acquiror Common Stock
deemed to be purchasable pursuant to such Company Stock Option;
provided, however, that in the case of any Company Stock Option to
which Section 421 of the Code applies by reason of its qualification
under Section 422 or Section 423 of the Code ("Qualified Stock
Options"), the option price, the number of shares purchasable pursuant
to such Company Stock Option and the terms and conditions of exercise
of such Company Stock Option shall be determined in order to comply
with Section 424 of the Code. Acquiror shall comply with the terms of
the Company Option Plans and the terms of the Company Stock Options
issued other than pursuant to the Company Option Plans as they apply
to the Company Stock Options assumed as set forth above.
(b) Acquiror shall take all corporate action necessary to reserve
for issuance a sufficient number of shares of Acquiror Common Stock
for delivery upon exercise of the Company Stock Options assumed in
accordance with this Section 5.7. Acquiror shall file a registration
statement on Form S-8 (or any successor form) or another appropriate
form,
-52-
effective as of the Effective Time, with respect to shares of Acquiror
Common Stock subject to such Company Stock Options and shall use its
best efforts to maintain the effectiveness of such registration
statement or registration statements (and maintain the current status
of the prospectus or prospectuses contained therein) for so long as
such Company Stock Options remain outstanding. With respect to those
individuals who subsequent to the Merger will be subject to the
reporting requirements under Section 16(a) of the Exchange Act,
Acquiror shall administer the Company Option Plans and the Company
Stock Options assumed pursuant to this Section 5.7 in a manner that
complies with Rule 16b-3 promulgated under the Exchange Act.
5.8 Indemnification; Directors' and Officers' Liability.
(a) From and after the Effective Time, the Surviving Corporation
shall indemnify, defend and hold harmless to the fullest extent
permitted by Ohio law and provided under the Company's Articles of
Incorporation and Code of Regulations as of the date of the Agreement,
and Acquiror shall indemnify, defend and hold harmless to the fullest
extent permitted under Delaware law each person who is now, or has
been at any time prior to the date hereof, an officer or director of
the Company (individually, an "Indemnified Party" and collectively,
the "Indemnified Parties"), against all losses, claims, damages,
liabilities, costs or expenses (including attorneys' fees), judgments,
fines, penalties and amounts paid in settlement of or otherwise in
connection with any Claim arising out of or pertaining to acts or
omissions, or alleged acts or omissions, by them in their capacities
as such occurring at or prior to the Effective Time (including,
without limitation, the transactions contemplated by this Agreement
and the Option Agreement and, with respect to the Surviving
Corporation, the Company's Articles of Incorporation and Code of
Regulations). In the event of any such Claim, Acquiror shall pay
expenses in advance of the final disposition of any such action or
proceeding to each Indemnified Party to the fullest extent permitted
under the DGCL, upon receipt from the Indemnified Party to whom
expenses are advanced of the undertaking to repay such advances
contemplated by Section 145(e) of the DGCL.
(b) Acquiror shall cause the Surviving Corporation to keep in
effect provisions in its Articles and Code of Regulations with respect
to indemnification identical to such provisions contained in the
Articles and Code of Regulations of the Company on the date hereof,
which provisions shall not be amended, repealed or otherwise modified
for a period of six years from the Effective Time in any manner that
would adversely affect the rights thereunder of individuals who at any
time prior to the Effective Time were directors or officers of the
Company in respect of actions or omissions at or prior to the
Effective Time (including, without limitation, the transactions
contemplated by this Agreement and the Option Agreement), except as
required by applicable law or except to make changes permitted by law
that would not materially diminish the Indemnified Parties' right of
indemnification.
(c) For a period of six years after the Effective Time, Acquiror
shall cause to be maintained in effect the current officers' and
directors' liability insurance maintained by the Company with respect
to those persons who are currently covered by the Company's directors'
and officers' liability insurance policy (provided that Acquiror may
substitute therefor policies of at least the same coverage and amounts
containing terms and conditions
-53-
which are no less advantageous to such persons than such existing
insurance) covering acts or omissions occurring prior to the Effective
Time; provided, however, that Acquiror shall not be required in order
to maintain or procure such coverage to pay an annual premium in
excess of 150% of the current annual premium paid by the Company for
its existing coverage (the "Cap"); and provided, further, that if
existing coverage cannot be maintained or equivalent coverage cannot
be obtained, or can be obtained only by paying an annual premium in
excess of the Cap, Acquiror shall only be required to obtain as much
coverage as can be obtained by paying an annual premium equal to the
Cap. The current annual premium paid by the Company for its existing
coverage is set forth in Section 5.8(c) of the Company Disclosure
Schedule.
(d) This Section 5.8 shall survive the closing of all of the
transactions contemplated hereby, is intended to benefit the officers
and directors of the Company at the Effective Time and each of the
Indemnified Parties and their respective heirs and personal
representatives (each of which shall be entitled to enforce this
Section 5.8 against Acquiror and the Surviving Corporation, as the
case may be, as a third-party beneficiary of this Agreement), and
shall be binding on all successors and assigns of Acquiror and the
Surviving Corporation.
5.9 Confidentiality. The Confidentiality Agreements are hereby affirmed
by Acquiror and the Company and the terms thereof are herewith incorporated
herein by reference and shall continue in full force and effect until the
Effective Time shall have occurred, and if this Agreement is terminated or if
the Effective Time shall not have occurred for any reason whatsoever, the
Confidentiality Agreements shall thereafter remain in full force and effect in
accordance with their terms; provided, however, to the extent there are any
provisions in the Confidentiality Agreements inconsistent with the terms of this
Agreement, the terms of this Agreement shall control.
5.10 Best Efforts.
(a) Subject to the terms and conditions herein provided, the
parties hereto shall: (i) promptly make their respective filings, and
thereafter make any other required submissions, with respect to this
Agreement and the Merger required under (A) the Securities Act (in the
case of Acquiror) and the Exchange Act and the rules and regulations
thereunder, and any other applicable federal or state securities laws,
(B) the HSR Act and (C) any other applicable Laws; (ii) use their
respective best efforts to cooperate with one another in (A)
determining which filings are required to be made prior to the
Effective Time with, and which consents, approvals, permits or
authorizations ("Third Party Consents") are required to be obtained
prior to the Effective Time from, Governmental Entities or other third
parties in order for the consummation by the parties hereto and their
respective subsidiaries of the transactions contemplated hereby and
(B) timely making all such filings and timely seeking all such Third
Party Consents and (iii) use their respective best efforts to take, or
cause to be taken, all other action and do, or cause to be done, all
other things necessary, proper or appropriate to consummate promptly
and make effective the transactions contemplated by this Agreement.
If, at any time after the Effective Time, any further action is
necessary or desirable to carry out the purpose of this Agreement, the
proper officers and directors of the parties hereto shall promptly
-54-
take all such necessary action. Each of the parties hereto shall
promptly give (or cause their respective subsidiaries to give) any
notices regarding the Merger, this Agreement or the transactions
contemplated hereby or thereby to third parties required under
applicable Law or by any contract, license, lease or other agreement
to which it or any of its subsidiaries is bound, and use, and cause
its Subsidiaries to use, their respective best efforts to obtain
promptly any Third Party Consents required under any such contract,
license, lease or other agreement in connection with the consummation
of the Merger or the other transactions contemplated by this
Agreement. Acquiror will use its best efforts to consummate the
acquisition of the Meditrust Investments (as defined below)
substantially in accordance with the terms of the letter agreement
dated October 16, 1998 between the Acquiror and Meditrust Mortgage
Investments, Inc., including, if necessary, instituting legal
proceedings to enforce its rights under such agreement. In the event
that, despite its best efforts, Acquiror is unable to so consummate
such acquisition by the Closing Date, Acquiror and the Company will
use their best efforts to obtain the consent of Meditrust Mortgage
Investments, Inc. or its affiliates to the Merger.
(b) No party hereto shall take any action for the purpose of
delaying, impairing or impeding the receipt of any Third Party
Consent, or the making of any required filing or registration. Each
party hereto shall use its respective best efforts (x) to overturn or
vacate any Law or Order (as defined in Section 7.1(b)) (whether
temporary, preliminary or permanent) enacted, issued, promulgated,
enforced or entered by any Governmental Entity or federal or state
court of competent jurisdiction which is in effect and has the effect
of making the Merger illegal or otherwise prohibiting consummation of
the transactions contemplated by this Agreement and (y) to remove any
condition or term of any Order or Third Party Consent (or proposed
Order or Third Party Consent) that, in the reasonable view of either
Acquiror or the Company, would be unreasonably burdensome to Acquiror
and Company, on a combined basis, after the Effective Time.
5.11 Certification of Shareholder Vote. At or prior to the Closing of the
transactions contemplated by this Agreement, the Company shall deliver to
Acquiror a certificate of its Secretary setting forth the number of shares of
Company Common Stock, voted in favor of adoption of this Agreement and
consummation of the Merger and the number of shares of Company Common Stock
voted against adoption of this Agreement and consummation of the Merger.
5.12 Affiliate Agreements. Not fewer than 45 days prior to the Effective
Time, the Company shall deliver to Acquiror a list of names and addresses of
each person who was, in the Company's reasonable judgment, at the record date
for the Company Stockholders' Meeting, an "affiliate" of the Company within the
meaning of Rule 145 promulgated under the Securities Act (a "Company
Affiliate"). The Company shall provide Acquiror such information and documents
as Acquiror shall reasonably request for purposes of reviewing such list. The
Company shall use its best efforts to cause each person who may be deemed to be
a Company Affiliate to deliver or cause to be delivered to Acquiror, not later
than 30 days prior to the Effective Time, an affiliate agreement substantially
in the form attached hereto as Exhibit C (each, a "Company Affiliate
Agreement"), executed by each of the Company Affiliates identified in the
above-referenced list.
-55-
5.13 Listing Application. Acquiror shall promptly prepare and submit to
Nasdaq a listing application covering the shares of Acquiror Common Stock
issuable in the Merger and pursuant to the exercise of Company Stock Options,
and shall use its best efforts to obtain, prior to the Effective Time, approval
for the inclusion in Nasdaq of such Acquiror Common Stock, subject to official
notice of issuance.
5.14 Supplemental Disclosure Schedules. Each of Acquiror and the Company
shall supplement their respective Disclosure Schedules delivered in connection
with this Agreement as of the Closing Date to the extent necessary to reflect
matters permitted by, or consented to by, the other party under this Agreement.
In addition, from time to time prior to the Closing Date, each of Acquiror and
the Company will promptly deliver to the other party such amended or
supplemental Disclosure Schedules as may be necessary to make the Schedules
accurate and complete in all material respects as of the Closing Date; provided,
however, that no such disclosure shall have any effect for the purpose of
determining the accuracy of any representation or warranty given by either party
hereto to the other party hereto or the satisfaction of the conditions set forth
in Article VI of this Agreement.
5.15 No Action. Except as contemplated by this Agreement, no party hereto
will, nor will such party permit any of its respective subsidiaries to, take or
agree or commit to take any action that could reasonably be expected to, result
in (i) any of the representations and warranties of such party set forth in this
Agreement becoming untrue or inaccurate in any material respect at the date made
(to the extent so limited) or as of the Closing Date, or (ii) any of the
conditions to the Merger set forth in Article VI not being satisfied.
5.16 Advice of Changes. Acquiror and the Company shall promptly advise
the other party orally and in writing to the extent it has knowledge of any
change or event having, or which, insofar as can reasonably be foreseen, would
reasonably be expected to have a Material Adverse Effect on Acquiror or the
Company, as the case may be, or on the truth of their respective representations
and warranties or the ability of the conditions set forth in Article VI to be
satisfied; provided, however, that no such notification shall have any effect on
the representations, warranties, covenants or agreements of the parties (or
remedies with respect thereto) or the conditions to the obligations of the
parties under this Agreement.
5.17 Option and Shareholder Agreements. Concurrently with the execution
and delivery of this Agreement, (i) Acquiror and the Company have executed and
delivered the Option Agreement in the form attached hereto as Exhibit A (the
"Option Agreement") and (ii) Acquiror and the other parties shall have executed
and delivered the Shareholder Agreements in the form attached hereto as Exhibit
B.
5.18 Plan of Reorganization. This Agreement is intended to constitute a
"plan of reorganization" within the meaning of Section 1.368-2(g) of the income
tax regulations promulgated under the Code. From and after the date of this
Agreement, each party hereto shall use its respective best efforts to cause the
Merger to qualify, and shall not, without the prior written consent of the other
parties hereto, knowingly take any actions or cause any actions to be taken
which could reasonably be expected to prevent the Merger from qualifying as a
-56-
reorganization under the provisions of Section 368 of the Code. In the event
that the Merger shall fail to qualify as a reorganization under the provisions
of Section 368 of the Code, then the parties hereto agree to negotiate in good
faith to restructure the Merger in order that it shall qualify as a tax-free
transaction under the Code. Following the Effective Time, and consistent with
any such consent, neither the Surviving Corporation nor Acquiror nor any of
their respective affiliates knowingly and voluntarily shall take any action or
cause any action to be taken which could reasonably be expected to cause the
Merger to fail to qualify as a reorganization under Section 368 of the Code.
5.19 Possible Acquiror Loan. Acquiror agrees to make available promptly
to the Company a fully secured line of credit in the principal amount of up to
$10 million on the terms and conditions set forth in the commitment letter
attached as Annex A hereto subject to good faith negotiation, execution and
delivery of mutually acceptable loan documentation consistent with such
commitment letter (the "Acquiror Loan").
5.20 Election of JMAC, Inc. Designee. Acquiror agrees that (a) as soon as
reasonably practicable following the Effective Time, so long as JMAC, Inc.
beneficially owns at least 500,000 shares of Acquiror Common Stock, Acquiror
will increase by one the size of the entire Board of Directors of Acquiror and
use its best efforts to elect or appoint a designee of JMAC, Inc., who is
reasonably acceptable to the Board of Directors of Acquiror, to fill such newly
created directorship and (b) following the initial term of such director, so
long as JMAC, Inc. beneficially owns at least 500,000 shares of Acquiror Common
Stock, Acquiror will nominate or renominate a designee of JMAC, Inc., who is
reasonably acceptable to the Board of Directors of Acquiror, and use its best
efforts to cause the election of such designee by the stockholders of Acquiror;
provided, however, it shall be a requirement of election or appointment under
clause (a) and nomination or renomination under clause (b) that such designee
shall execute and deliver to the Acquiror a letter stating that if such designee
becomes a member of the Board of Directors of Acquiror, such designee resigns as
a director effective upon receiving notice that JMAC, Inc. beneficially owns
less than 500,000 shares of Acquiror Common Stock. Acquiror agrees that either
Richard R. Slager or Pete A. Klisares is acceptable as a designee of JMAC, Inc.
for this purpose.
5.21 Employee Benefits.
(a) It is Acquiror's current intention that, within a reasonable
time after the Effective Time, employees of the Company and the
Company Subsidiaries ("Covered Employees") shall be eligible to
participate in all employee benefit and compensation plans, programs
and arrangements maintained, sponsored or contributed to by the
Acquiror (the "Acquiror Plans") on the same terms as any such Acquiror
Plan is offered to similarly situated employees of the Acquiror. For
purposes of all Acquiror Plans, including severance plans or policies,
the Acquiror shall cause each such plan, program or arrangement to
treat the prior service of each Covered Employee with the Company or
the Company Subsidiaries as service rendered to the Acquiror for
purposes of eligibility, vesting and benefit accruals under any
Acquiror Plan (but not for purposes of benefit accruals under any
defined benefit or defined contribution pension plan). To the extent
Covered Employees are participating in an Acquiror
-57-
welfare benefit plan, the Acquiror will use its best efforts to (i)
cause any and all pre-existing condition limitations and eligibility
waiting periods under such welfare benefit plan to be waived with
respect to Covered Employees and their eligible dependents and (ii) to
the extent that any Covered Employee or his or her eligible dependents
have satisfied in whole or in part any annual deductible or paid any
out of pocket or co-payment expenses under the applicable plan of the
Company prior to the commencement of participation in Acquiror's plan,
to cause such individual to be credited therefor under the
corresponding plan of the Acquiror in which such individual
participates after such commencement.
(b) Acquiror shall honor, in accordance with their terms, the
agreements listed in Schedule 4.12 of the Company Disclosure Schedule.
ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each party to effect the Merger and the other
transactions contemplated herein shall be subject to the fulfillment at or prior
to the Effective Time of the following conditions, any or all of which may be
waived, in whole or in part, to the extent permitted by applicable Law:
(a) The Registration Statement shall have been declared effective by
the Commission under the Securities Act, and no stop order suspending the
effectiveness of the Registration Statement shall have been issued by the
Commission and shall be continuing to be in effect, and no proceedings
for that purpose shall have been initiated or threatened by the
Commission. All state securities laws or "blue sky" permits and
authorizations necessary to issue the Share Consideration pursuant to the
Merger and the transactions contemplated hereby at the Closing (except to
the extent contemplated in Section 5.7(b)) shall have been received, or
the issuance of the Share Consideration shall be exempt from the
requirements of such state laws.
(b) This Agreement and the Merger contemplated hereby and any other
action necessary to consummate the transactions contemplated hereby shall
have been approved and adopted by the requisite vote of the holders of
the outstanding shares of the Company Common Stock entitled to vote
thereon at the Company Shareholders' Meeting.
(c) No Governmental Entity or court of competent jurisdiction shall
have enacted, issued, promulgated, enforced or entered any Law or Order
(whether temporary, preliminary or permanent) which is in effect and
would be materially burdensome to Acquiror and the Company, on a combined
basis, after the Effective Time, or has the effect of making the Merger
illegal or otherwise prohibiting consummation of the transactions
contemplated by this Agreement, nor shall any proceeding by any
Governmental Entity seeking any of the foregoing be pending.
-58-
(d) The applicable waiting period under the HSR Act shall have
expired or been terminated without action by the Justice Department or
the Federal Trade Commission to prevent consummation of the Merger.
(e) The shares of Acquiror Common Stock issuable to the Company's
shareholders and option holders in the Merger or thereafter shall have
been authorized for trading in Nasdaq, upon official notice of issuance.
(f) There shall not have been instituted or pending any action or
proceeding by any Governmental Entity, nor shall there be any
determination by any Government Entity, which, in either case, would
require either party to take any action or do anything in connection with
the foregoing which would compel Acquiror to dispose of all or a material
portion of the business or assets of Acquiror and the Acquiror
Subsidiaries, taken as a whole, or of the Company and the Company
Subsidiaries, taken as a whole.
(g) Acquiror and Company shall have received the E&Y Comfort
Letters, as provided in Section 5.1(e).
(h) The Company shall have received the opinion of Wachtell, Lipton,
Rosen & Katz dated as of the Closing Date, to the effect that (i) the
Merger will be treated for Federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code, (ii)
that each of Acquiror, Merger Sub and the Company will be a party to the
reorganization within the meaning of Section 368(b) of the Code and (iii)
that no gain or loss will be recognized by a shareholder of the Company
with respect to the exchange of Company Shares solely for shares of
Acquiror Common Stock pursuant to the Merger (except with respect to the
receipt of cash in lieu of fractional share interests in Acquiror Common
Stock).
(i) Acquiror shall have received the opinion of Hogan & Hartson
L.L.P., dated as of the Closing Date, to the effect that (i) the Merger
will be treated for Federal income tax purposes as a reorganization
within the meaning of section 368(a) of the Code, (ii) that each of
Acquiror, Merger Sub and the Company will be a party to the
reorganization within the meaning of Section 368(b) of the Code and (iii)
no gain or loss will be recognized by the Company, Acquiror or Merger Sub
as a result of the Merger.
(j) Acquiror shall have received a Company Affiliate Agreement from
each of the Company Affiliates.
6.2 Additional Conditions to the Obligations of the Company. The
obligation of the Company to effect the Merger and the other transactions
contemplated in this Agreement shall be subject to the fulfillment by the
Company at or prior to the Effective Time of the following additional
conditions, any or all of which may be waived, to the extent permitted by
applicable Law:
-59-
(a) Each of Acquiror and Merger Sub shall have performed and
complied with, in all material respects, all of the agreements,
covenants and obligations under this Agreement required to be
performed or complied with by it on or prior to the Closing Date
pursuant to the terms hereof.
(b) Each of the representations and warranties of Acquiror and
Merger Sub in this Agreement (ii) which are qualified with respect to
a Material Adverse Effect on Acquiror shall be true and correct both
when made and as of the Closing Date, and (ii) all such
representations and warranties that are not so qualified shall be true
and correct as of the date of this Agreement and as of the Closing
Date as though made on and as of the Closing Date (except to the
extent any such representation or warranty expressly speaks as of an
earlier date) except where the failure of such representations and
warranties to be true and correct would not, individually or in the
aggregate, be reasonably likely to have a Material Adverse Effect on
Acquiror.
(c) From the date hereof through the Closing Date, there shall not
have been any Material Adverse Effect on Acquiror.
(d) Each of Acquiror and Merger Sub shall have delivered to the
Company a certificate of its Chief Executive Officer or President and its
Chief Financial Officer certifying the fulfillment (or waiver by the
Company) of the conditions set forth in clauses (a), (b), (c) and (e) of
this Section 6.2 and, as to Acquiror and Merger Sub, of the conditions
set forth in Section 6.1.
(e) Acquiror and Merger Sub shall have obtained all Third Party
Consents (required by Acquiror, any Acquiror Subsidiary or Merger Sub)
for the consummation by such entities of the transactions contemplated
hereby, except for (i) such Third Party Consents which, if not obtained
would not individually or in the aggregate, reasonably be anticipated to
have a Material Adverse Effect on Acquiror and (ii) such Third Party
Consents which, in accordance with applicable Law, cannot be obtained
prior to the Effective Time.
(f) The Company shall have received from Hogan & Hartson L.L.P.,
counsel to Acquiror, and Dinsmore & Shohl, counsel to Acquiror, opinions
dated as of the Effective Time in the forms attached hereto as Exhibit
E-1 and Exhibit E-2, respectively.
6.3 Conditions to the Obligations of Acquiror and Merger Sub to Effect
the Merger. The obligations of Acquiror and Merger Sub to effect the Merger
shall be subject to the fulfillment by Acquiror at or prior to the Effective
Time of the following additional conditions, any or all of which may be waived,
to the extent permitted by applicable law:
(a) The Company shall have performed and complied with, in all
material respects, all of the agreements, covenants and obligations under
this Agreement required to be performed or complied with by it on or
prior to the Closing Date pursuant to the terms hereof.
-60-
(b) Each of the representations and warranties of the Company in
this Agreement (i) which are qualified with respect to a Material
Adverse Effect on the Company or materiality shall be true and correct
both when made and as of the Closing Date, and (ii) all such
representations and warranties that are not so qualified shall be true
and correct as of the date of this Agreement and as of the Closing
Date as though made on and as of the Closing Date (except to the
extent any such representation or warranty expressly speaks as of an
earlier date) except where the failure of such representations and
warranties to be true and correct would not, individually or in the
aggregate, be reasonably likely to have a Material Adverse Effect on
the Company.
(c) From the date hereof through the Closing Date, there shall
not have been any Material Adverse Effect on the Company.
(d) The Company shall have delivered to Acquiror a certificate of
its Chief Executive Officer or President and its Chief Financial
Officer certifying the fulfillment (or waiver by Acquiror) of the
conditions set forth in clauses (a), (b), (c) and (e) of this Section
6.3 and, as to the Company, of the conditions set forth in Section 6.1.
(e) The Company shall have obtained all Third Party Consents
(required by the Company or any Company Subsidiary) for the consummation
by such entities of the transactions contemplated hereby, except for (i)
such Third Party Consents which, if not obtained, would not individually
or in the aggregate, reasonably be anticipated to have a Material Adverse
Effect on the Company and (ii) such Third Party Consents which, in
accordance with applicable Law, cannot be obtained prior to the Effective
Time; no such Third Party Consent obtained by the Company shall be
subject to a condition or term that individually or in the aggregate
would result in a Material Adverse Effect on the Company after the
Effective Time.
(f) Holders of no more than 10% of the outstanding shares of
Company Common Stock shall have asserted the right to seek relief as a
dissenting shareholder under Section 1701.84 and other applicable
provisions of the OGCL.
(g) Acquiror shall have received from Wachtell, Lipton, Rosen &
Katz, counsel to the Company, and Bricker & Eckler, counsel to the
Company, opinions dated as of the Effective Time in the forms attached
hereto as Exhibit E-3 and Exhibit E-4, respectively.
(h) Either (A) the Company shall have delivered to Acquiror the new
option agreements described in Section 5.7 evidencing the consent of each
holder of a Company Stock Option to have such Company Stock Option
assumed by Acquiror and to become an option to acquire Acquiror Common
Stock, or (B) Acquiror shall have received an opinion of counsel to the
Company, reasonably satisfactory in form and substance to Acquiror, that
as of the Effective Time Acquiror can assume the Company Stock Options in
accordance with Section 5.7(a) of this Agreement without obtaining the
-61-
consents of the holders of the Company Stock Options and without
violating the terms of applicable Company Stock Option Plans and option
agreements thereunder evidencing the Company Stock Options.
(i) Either (A) Acquiror or an Acquiror Subsidiary shall have
acquired the Meditrust Investments (as defined in Section 4.31 of the
Company Disclosure Schedule) or (B) Acquiror shall have received the
written consent to the Merger from Meditrust Mortgage Investments,
Inc. or an affiliate which consent shall not be subject to a condition
or term that Acquiror determines to be unreasonable.
ARTICLE VII
TERMINATION
7.1 Termination.
(a) Termination by Mutual Consent. This Agreement may be
terminated and the Merger may be abandoned at any time prior to the
Effective Time, before or after the approval of this Agreement by the
shareholders of the Company, by the mutual written consent of Acquiror
and the Company (acting pursuant to authorization by their respective
boards of directors).
(b) Termination by Either the Company or Acquiror. This Agreement
may be terminated and the Merger may be abandoned by action of the
Board of Directors of either the Company or Acquiror (evidenced in a
notice given by the terminating party to the non-terminating party) at
any time prior to the Effective Time, whether before or after the
approval and adoption of this Agreement by the shareholders of the
Company, if (i) the Merger shall not have been consummated by March
31, 1999 (provided, however, that this date may be extended to a date
not later than June 30, 1999 by written notice of either Acquiror or
the Company given to the other if the Merger shall not have been
consummated as a result of Acquiror or the Company having failed by
March 31, 1999 to receive all necessary Third Party Consents with
respect to the Merger (as contemplated in Sections 6.2(e) and 6.3(e))
or as a result of an order, writ, judgment, injunction, consent
decree, stipulation, determination or award entered by or with any
Governmental Entity, as contemplated in Sections 6.1(c) and (f)), or
(ii) the approval of the Company's shareholders required by Section
6.1(b) shall not have been obtained at the Company Shareholders'
Meeting or at any adjournment or postponement thereof, or (iii) a
court of competent jurisdiction or Governmental Entity shall have
issued an order, decree or ruling or taken any other action
permanently restraining, enjoining or otherwise prohibiting the
transactions contemplated by this Agreement (an "Order") and such
Order shall have become final and non-appealable; provided, that the
party seeking to terminate this Agreement pursuant to this clause
(iii) must have used its best efforts to remove such Order; provided
further, in the case of a termination pursuant to clause (i) or (ii)
above, that the terminating party shall not have breached in any
material respect its obligations under this Agreement.
(c) Termination by Acquiror. This Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Time,
before or after the adoption
-62-
and approval by the shareholders of the Company referred to in Section
6.1(b), by action of the Board of Directors of Acquiror evidenced by
notice given by Acquiror to the Company if (i) there has been a breach
of any representation, warranty, covenant or agreement on the part of
the Company set forth in this Agreement, or if any representation or
warranty of the Company shall have become untrue, in either case such
that the conditions in Section 6.3(a) or Section 6.3(b) would not be
satisfied (a "Terminating Company Breach"); provided that, if such
Terminating Company Breach is curable by the Company through the
exercise of its best efforts, then, for so long as the Company
continues to exercise such best efforts (and as long as such breach is
cured within 30 days of the date the Company is notified by Acquiror
of such breach), Acquiror may not terminate this Agreement under this
Section 7.1(c)(i); (ii) following the announcement or receipt of a
proposal of a Third Party Transaction, the Board of Directors of the
Company shall have altered or withdrawn its determination to recommend
that the shareholders of the Company approve this Agreement and the
transactions contemplated hereby; or (iii) following the announcement
or receipt of a proposal for a Third Party Transaction, the Company
shall have failed to proceed to hold the Company Shareholders' Meeting
as required by Section 5.1.
(d) Termination by the Company. This Agreement may be terminated
and the Merger may be abandoned at any time prior to the Effective
Time, before or after the adoption and approval by the shareholders of
the Company referred to in Section 6.1(b) by action of the Board of
Directors of the Company evidenced by notice given by the Company to
Acquiror if there has been a breach of any representation, warranty,
covenant or agreement on the part of Acquiror set forth in this
Agreement, or if any representation or warranty of Acquiror shall have
become untrue, in either case such that the conditions in Section
6.2(a) or Section 6.2(b) would not be satisfied (a "Terminating
Acquiror Breach"); provided that, if such Terminating Acquiror Breach
is curable by Acquiror through the exercise of its best efforts and
for so long as Acquiror continues to exercise such best efforts (and
as long as such breach is cured within 30 days after the date Acquiror
is notified by the Company of such breach), the Company may not
terminate this Agreement under this Section 7.1(d).
7.2 Effects of Termination.
(a) If (A) the Acquiror terminates this Agreement pursuant to
clause (ii) or (iii) of Section 7.1(c) or (B) either Acquiror or the
Company terminates this Agreement pursuant to clause (i) or (ii) of
Section 7.1(b) provided that prior to termination of this Agreement
pursuant to either clause (i) or (ii) of Section 7.1(b) a proposal for
a Third Party Transaction was announced or received by the Company and
following termination of this Agreement pursuant to either subsection
(A) or (B) hereof any Third Party Transaction is consummated
(including, in the case of a tender offer, acceptance of shares upon
the expiration of the tender offer) within one year after such
termination, the Company (or the successor thereto) shall pay Acquiror
by wire transfer in immediately available funds a fee of $5 million
upon consummation of any Third Party Transaction.
(b) Except as provided in this Section 7.2 or Section 8.3 or
Section 8.4, in the event of the termination of this Agreement
pursuant to Section 7.1, this Agreement shall become
-63-
void and have no effect, there shall be no liability on the part of
the parties or any of their respective officers or directors to the
other and all rights and obligations of any party hereto shall cease;
provided, however, that nothing herein shall relieve any party from
liability for the willful and material breach of any of its
representations, warranties, covenants or agreements set forth in this
Agreement, or from any obligation under the Confidentiality Agreement.
7.3 Procedure for Termination. Termination of this Agreement pursuant to
Section 7.1 shall, in order to be effective, require, in the case of Acquiror or
the Company, action by its Board of Directors.
ARTICLE VIII
MISCELLANEOUS
8.1 Amendment. Subject to the applicable provisions of state law, this
Agreement may be amended by the parties hereto solely by action taken by their
respective Boards of Directors at any time prior to the Effective Time;
provided, however, that after the approval and adoption of this Agreement by the
Company's shareholders, no amendment may be made that (i) would reduce the
amount or change the type of consideration into which each Company Share shall
be converted pursuant hereto or (ii) by Law requires further approval by the
shareholders of the Company without the further approval of such shareholders.
This Agreement may not be amended except by an instrument in writing signed on
behalf of each of the parties hereto.
8.2 Waiver. At any time prior to the Closing Date, the parties hereto, by
action taken by their respective Boards of Directors, may (i) extend the time
for the performance of any of the obligations or other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations and warranties of the
other party contained herein or in any documents delivered pursuant hereto, and
(iii) waive compliance by the other party with any of the agreements or
conditions herein. Any agreement on the part of a party hereto to any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such party. No waiver by either party of any default with
respect to any provision, condition or requirement hereof shall be deemed to be
a waiver of any other provision, condition or requirement hereof; nor shall any
delay or omission of either party to exercise any right hereunder in any manner
impair the exercise of any such right accruing to it thereunder.
8.3 Survival. All representations, warranties and agreements contained in
this Agreement or in any instrument delivered pursuant to this Agreement shall
terminate and be extinguished at the Effective Time or the earlier date of
termination of this Agreement pursuant to Section 7.1, as the case may be,
except that the agreements set forth in Article I and Article II and in Sections
5.7, 5.8, 5.17, 5.21, 8.2, 8.3 and 8.4 will survive the Effective Time and those
set forth in Sections 5.9, 7.2 and Article VIII will survive the termination or
expiration of this Agreement.
8.4 Expenses and Fees. Subject to Section 7.2, whether or not the Merger
is consummated, all costs and expenses incurred by the parties hereto in
connection with this
-64-
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such expenses except as expressly provided herein and except that (i)
the filing fee in connection with the HSR Act filing, (ii) the filing fee in
connection with the filing of the Registration Statement or Proxy Statement with
the Commission and Blue Sky Filing fees and (iii) the expenses incurred in
connection with printing and mailing of the Registration Statement and the Proxy
Statement, shall be shared equally by Acquiror and the Company.
8.5 Notices. All notices and other communications given or made pursuant
hereto shall be in writing and shall be given (and shall be deemed to have been
duly given upon receipt) by delivery in person, by telecopy or facsimile, by
registered or certified mail (postage prepaid, return receipt requested), or by
a nationally recognized courier service to the parties at the following
addresses (or at such other address for a party as shall be specified by like
changes of address) or, if sent by telecopy or facsimile, to the parties at the
telecopier numbers specified below:
If to Merger Sub or Acquiror: Sunrise Assisted Living, Inc.
9401 Lee Highway, Suite 300
Fairfax, Virginia 22031
Attn: Thomas B. Newell, Esq.
Telecopier: (703) 273-6853
With a copy (which shall not constitute notice) to:
Hogan & Hartson L.L.P.
555 Thirteenth Street, N.W.
Washington, DC 20004
Attn: Robert J. Waldman, Esq.
Telecopier: (202) 637-5910
-65-
If to the Company: Karrington Health, Inc.
919 Old Henderson Road
Columbus, Ohio 43220
Attn: Stephen Lewis, Esq.
Telecopier: (614) 451-5199
With copies (which shall not constitute notice) to:
Bricker & Eckler LLP
100 South Third Street
Columbus, Ohio 43215-4291
Attention: Charles H. McCreary, III, Esq.
and Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Craig M. Wasserman, Esq.
8.6 Interpretation. When a reference is made in this Agreement to an
Article, Section, Exhibit or Schedule, such reference is to an Article or
Section of, or an Exhibit or Schedule to, this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include", "includes" and
"including" are used in this Agreement, they are deemed to be followed by the
words "without limitation." For all purposes of this Agreement, except as
otherwise expressly provided or unless the context otherwise requires, (a) the
terms defined include the plural as well as the singular, (b) all accounting
terms not otherwise defined herein have the meanings assigned under generally
accepted accounting principles, and (iii) the words "herein", "hereof" and
"hereunder" and other words of similar import refer to this Agreement as a whole
and not to any particular Article, Section, or other subdivision.
8.7 Mutual Drafting. Each party hereto has participated in the drafting
of this Agreement, which each party acknowledges is the result of extensive
negotiations between the parties.
8.8 Public Announcements. The Company and Acquiror shall consult with
each other before issuing any press release or otherwise making any public
statements with respect to this Agreement or the transactions contemplated
hereby or any termination of this Agreement (other than statements in response
to nonpublic inquiries received with respect to this Agreement or the
transactions contemplated hereby) and shall not issue any such press release or
make any such public statement (other than statements in response to nonpublic
inquiries received with respect to this Agreement or the transactions
contemplated hereby) without the prior consent of the other party, which shall
not be unreasonably withheld or delayed; provided, however, that a party may,
without the prior consent of the other party, issue such press release or make
such public
-66-
statement as may be required by Law or any listing agreement with a national
securities exchange to which the Company or Acquiror is a party if it has used
best efforts to consult with the other party and to obtain such party's consent
but has been unable to do so in a timely manner.
8.9 Certain Definitions. For purposes of this Agreement, the term:
(a) "affiliate" means a person that directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is
under common control with, the first mentioned person;
(b) "best efforts" means, as to a party hereto, an undertaking by
such party to perform or satisfy an obligation or duty or otherwise
act in a manner reasonably calculated to obtain the intended result by
action or expenditure not disproportionate or unduly burdensome in the
circumstances, which means, among other things, that such party shall
not be required to (a) expend funds other than for payment of the
reasonable and customary costs and expenses of employees, counsel,
consultants, representatives or agents of such party in connection
with the performance or satisfaction of such obligation or duty or
other action or (ii) institute litigation or arbitration as a part of
its best efforts.
(c) "business day" means any day other than a day on which banks
in the State of New York are authorized or obligated to be closed;
(d) "control" (including the terms "controlled", "controlled by"
and "under common control with") means the possession, directly or
indirectly or as trustee or executor, of the power to direct or cause
the direction of the management or policies of a person, whether
through the ownership of voting securities or as trustee or executor,
by contract, agreement or otherwise;
(e) "Environmental Laws" means any Laws (including, without
limitation, the Comprehensive Environmental Response, Compensation,
and Liability Act), including any plans, other criteria, or guidelines
promulgated pursuant to such Laws, now or hereafter in effect relating
to the generation, production, installation, use, sale, storage,
treatment, transportation, release, threatened release, or disposal of
Hazardous Materials, noise control, or the protection of human health
or safety, natural resources, or the environment.
(f) "Hazardous Materials" means any wastes, substances,
radiation, or materials (whether solids, liquids or gases) (i) which
are hazardous, toxic, infectious, explosive, radioactive,
carcinogenic, or mutagenic; (ii) which are or become defined as a
"pollutants" "contaminants", "hazardous materials," "hazardous
wastes," "hazardous substances," "toxic substances," "radioactive
materials," "solid wastes," or other similar designations in, or
otherwise subject to regulation under, any Environmental Laws; (iii)
the presence of which on either the Acquiror Real Property or the
Company Real Property, as the case may be, cause or threaten to cause
a nuisance pursuant to applicable statutory or common law upon such
Real Property or to adjacent properties; (iv) without limitation,
which contain
-67-
polychlorinated biphenyls (PCBs), asbestos and asbestos-containing
materials, lead-based paints, urea-formaldehyde foam insulation, and
petroleum or petroleum products (including, without limitation, crude
oil or any fraction thereof) or (v) which pose a hazard to human
health, safety, natural resources, industrial hygiene, or the
environment, or an impediment to working conditions.
(g) "knowledge" or "known" shall mean, with respect to any matter
in question, if an executive officer of Acquiror or the Company, as
the case may be, has actual knowledge of such matter or, after
reasonable diligence, should know of such matter;
(h) "Laws" means all foreign, federal, state and local statutes,
laws, ordinances, regulations, rules, resolutions, orders,
determinations, writs, injunctions, common law rulings, awards
(including, without limitation, awards of any arbitrator), judgments
and decrees applicable to the specified persons or entities and to the
businesses and Assets thereof (including, without limitation, Laws
relating to securities registration and regulation; the sale, leasing,
ownership or management of real property; employment practices, terms
and conditions, and wages and hours; building standards, land use and
zoning; safety, health and fire prevention; and environmental
protection, including Environmental Laws).
(i) "Person" means an individual, corporation, partnership,
association, trust, unincorporated organization, other entity or group
(as defined in Section 13(d) of the Exchange Act);
(j) "Release" means any emission, spill, seepage, leak, escape,
leaching, discharge, injection, pumping, pouring, emptying, dumping,
disposal, or release of Hazardous Materials from any source
(including, without limitation, the Acquiror Real Property or the
Company Real Property, as the case may be, and property adjacent to
such Real Property) into or upon the environment, including the air,
soil, improvements, surface water, groundwater, the sewer, septic
system, storm drain, publicly owned treatment works, or waste
treatment, storage, or disposal systems at, on, from, above, or under
such Real Property or any other property at which Hazardous Materials
originating on or from such Real Property or the businesses or assets
of Acquiror or any Acquiror Subsidiary or the Company or any Company
Subsidiary, as the case may be, have been stored, treated or disposed.
(k) "subsidiary" or "subsidiaries" of Acquiror, the Company, the
Surviving Corporation or any other person, means any corporation,
partnership, joint venture, limited liability company or other legal
entity of which Acquiror, the Company, the Surviving Corporation or
such other person, as the case may be (either alone or through or
together with any other subsidiary), owns, directly or indirectly, 50%
or more of the stock or other equity interests or voting ownership or
voting partnership or voting membership interests the holders of which
are generally entitled to vote for the election of the board of
directors or other governing body of such corporation or other legal
entity or sufficient to elect a majority of such board of directors or
other governing body.
-68-
(l) "Third Party Intellectual Property Rights" means (i) patents,
patent applications, registered and unregistered trademarks, trade
names and service marks, registered and unregistered copyrights, and
maskworks included in the Acquiror Intellectual Property Rights or
Company Intellectual Property Rights, as the case may be, including
the jurisdictions in which each such item of such Intellectual
Property Rights has been issued or registered or in which any
application for such issuance and registration has been filed, (ii)
licenses, sublicenses and other agreements as to which Acquiror or
Company, as applicable, is a party and pursuant to which any person is
authorized to use any such Intellectual Property Rights, and (iii)
licenses, sublicenses and other agreements as to which Acquiror or
Company, as applicable, is a party and pursuant to which Acquiror or
Company, as applicable, is authorized to use any third party patents,
trademarks or copyrights, including software.
8.10 Entire Agreement. This Agreement (together with the Exhibits,
Annexes and Schedules hereto), constitutes the entire agreement among the
parties and supersedes all other prior agreements and understandings, both
written and oral, among the parties, or any of them, with respect to the subject
matter hereof.
8.11 Assignment; Parties in Interest. This Agreement and all of the
provisions hereof shall be binding upon and inure solely to the benefit of the
parties hereto and their respective successors and permitted assigns. Neither
this Agreement nor any of the rights, interests or obligations shall be
assigned, in whole or in part, by any of the parties hereto by operation of law
or otherwise. Except as set forth in Section 5.7, 5.8 and in Article II hereof,
nothing in this Agreement, express or implied, is intended to confer upon any
other person any rights, benefits or remedies of any nature whatsoever under or
by reason of this Agreement.
8.12 Counterparts. This Agreement may be executed and delivered in one or
more counterparts, all of which shall be considered one and the same agreement
and each of which shall be deemed an original.
8.13 Invalidity; Severability. In the event that any provision of this
Agreement shall be deemed contrary to law or public policy or invalid or
unenforceable in any respect by a court of competent jurisdiction, the remaining
provisions shall remain in full force and effect to the extent that such
provisions can still reasonably be given effect in accordance with the
intentions of the parties, and the invalid and unenforceable provisions shall be
deemed, without further action on the part of the parties, modified, amended and
limited solely to the extent necessary to render the same valid and enforceable.
Upon such determination that any term or other provision is invalid, illegal, or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in an acceptable manner to the end that transactions
contemplated hereby are fulfilled to the extent possible.
-69-
8.14 Enforcement; Consent to Jurisdiction. The parties agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with its specific terms or were
otherwise breached. The parties accordingly agree that the parties will be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions of this Agreement in any
court of the United States located in the State of Delaware or in Delaware state
court, this being in addition to any other remedy to which they are entitled at
Law or in equity. In addition, each of the parties hereto (a) consents to submit
itself to the personal jurisdiction of any federal court located in the State of
Delaware or any Delaware state court in the event any dispute arises out of the
Agreement or any of the transactions contemplated by this Agreement, (b) agrees
that it will not attempt to deny or defeat such personal jurisdiction by motion
or other request for leave from any such court and (c) agrees that it will not
bring any action relating to this Agreement or the transactions contemplated by
this Agreement in any court other than a federal or state court sitting in the
State of Delaware.
8.15 Governing Law. The validity and interpretation of this Agreement
shall be governed by, and construed in accordance with, the laws of the State of
Delaware, without reference to the conflict of laws principles thereof; except
that the effectiveness of the Merger shall be governed by, and construed in
accordance with, the laws of the State of Ohio.
-70-
IN WITNESS WHEREOF, Acquiror, Merger Sub and the Company have caused
this Agreement to be executed and delivered by their respective officers
thereunto duly authorized, all as of the date first written above.
"COMPANY" "ACQUIROR"
By: /s/ RICHARD R. SLAGER By: /s/ DAVID W. FAEDER
------------------------------ ---------------------------
Richard R. Slager David W. Faeder
Chairman and Chief Executive President
Officer
"MERGER SUB"
By: /s/ DAVID W. FAEDER
-----------------------------
David W. Faeder
President
[END OF SIGNATURE PAGE]
-71-