CONTRIBUTION AGREEMENT
Among
AK ASSOCIATES, INC.
XXXXXX XXXXXXX,
XXXXXXXX XXXXXXXX,
PRIME KIDNEY STONE TREATMENT, INC.,
And
AK ASSOCIATES, L.L.C.
____________________
Dated September 1, 1997
_____________________
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CONTRIBUTION AGREEMENT
This Contribution Agreement (this "Agreement") is entered into to be
effective as of September 1, 1997 (the "Effective Time"), among Prime Kidney
Stone Treatment, Inc., a New Jersey corporation ("Prime"), AK Associates, Inc.,
an Illinois corporation ("AK"), Xxxxxx Xxxxxxx ("Xxxxxxx"), Xxxxxxxx Xxxxxxxx
("Sodomire"), and AK Associates, L.L.C., a Texas limited liability company
("Newco"). AK, Xxxxxxx and Sodomire are also sometimes referred to collectively
herein as the "Sellers" and individually as a "Seller".
The parties hereto agree as follows:
ARTICLE I
AGREEMENT OF PURCHASE AND SALE
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1.1 AGREEMENT. Upon the basis of the representations and warranties, for
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the consideration, and subject to the terms and conditions set forth in this
Agreement, (a) Prime agrees to purchase, as of the Effective Time, from AK an
undivided 75% interest in the Assets (as hereinafter defined) for $4,761,050 in
cash (the "Purchase Price), (b) Prime agrees to contribute to Newco, as of the
Effective Time, the undivided 75% interest in the Assets purchased by Prime, and
will receive a 75% ownership interest in Newco; and (c) AK agrees to contribute,
as of the Effective Time, the remaining undivided 25% interest in the Assets to
Newco and will receive a 25% ownership interest in Newco. The Purchase Price
will be allocated to the Assets in accordance with Schedule 1.1 attached hereto.
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Prime and AK agree to
execute the regulations and other organizational documents of Newco, in the form
attached as Exhibit A (the "Organizational Documents").
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1.2 CLOSING. The closing of the transactions contemplated by Section 1.1
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(the "Closing") shall take place at the offices of Akin, Gump, Strauss, Xxxxx &
Xxxx, L.L.P., 1900 Frost Bank Plaza, 000 Xxxxxxxx Xxxxxx, Xxxxxx, Xxxxx 00000,
or at such other location as the parties may agree. The date on which the
Closing occurs is hereinafter referred to as the "Closing Date."
1.3 ASSETS. The term "Assets" shall include all of the business and
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assets, tangible or intangible, wherever situated, of AK, as of the Effective
Time, such assets to include, without limitation: accounts receivable,
inventory, work in process, prepaid expenses, supplies, vehicles, any cash or
other property or amounts received for services rendered on or after the
Effective Time; all contract rights of AK; all licenses, certificates and
permits; the telephone number(s) of AK; the name of AK and all trade names and
other intellectual property; deposits; computer software used by AK in its
operations; all of the leasehold improvements, furniture, fixtures, equipment
and other fixed assets owned or leased by AK; all items of personal property
owned or leased by AK; including without limitation all the assets specifically
set out on Schedule 1.3 attached hereto. Notwithstanding the foregoing, the
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following shall not be "Assets" and shall be retained by AK:
(a) the books of account and record books of AK (complete and accurate
copies of which shall be provided to Prime on or before the Closing Date);
(b) AK's rights under this Agreement;
(c) AK's ownership interest in Newco;
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(d) all cash balances (excluding all sums received by AK for services
performed by AK on or after the Effective Time); and
(e) all motor vehicles other than the 1992 Ford van.
1.4 ASSUMED LIABILITIES. At the Closing, Newco shall only assume (i) the
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obligations of AK specifically described on Schedule 1.4 hereto, (ii) those
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trade payables on open account incurred in the ordinary course of AK's business
since September 1, 1997 from unrelated parties, and (iii) obligations accruing
after the Effective Time under contracts for jobs in progress or not yet begun
(which jobs Newco agrees to complete according to the terms of such contracts).
Such limited assumption shall be pursuant to that certain general conveyance,
assignment and transfer of assets and assumption of liabilities, attached hereto
as Exhibit B (the "Assignment and Assumption Agreement") to be executed by
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Newco, Prime and AK at the Closing, effective as of the Effective Time. With
respect to any lease obligations reflected on Schedule 1.4, and any contracts
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described in clause (iii) of the first sentence of this Section 1.4, it is
agreed that Newco will only be assuming obligations thereunder which accrue
after the Effective Time, and will have no responsibility whatsoever for any
breaches or defaults which occurred prior to the Closing Date, or for
obligations accruing prior to the Effective Time. Except for those liabilities
and obligations specifically assumed by Newco as provided above, any and all
debts, liabilities, and obligations of AK, whether known or unknown, absolute,
contingent or otherwise (including, but not limited to, federal, state, and
local taxes, any sales taxes, use taxes and property taxes, any taxes arising
from the transactions contemplated by this Agreement and any liabilities arising
from any litigation or civil, criminal or regulatory proceeding involving or
related to AK or its business) shall remain the sole responsibility of AK and AK
covenants to pay promptly all such
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debts and liabilities and to fulfill all such obligations as and when the same
become due. Notwithstanding the foregoing, if there should be any controversy
regarding any debt or liability, AK shall not be required to pay promptly such
debt or liability and shall instead indemnify and hold harmless Newco and Prime
from any liability for such debt or liability.
1.5 ADDITIONAL PAYMENT. In addition to the Purchase Price provided in
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Section 1.1 above, AK shall be entitled to receive an additional payment from
Prime, on the terms and subject to the conditions of this Section, based on the
Adjusted Net Income (as hereinafter defined) of Newco for the calendar year
1998.
For purposes of this Agreement, the "Adjusted Net Income" of Newco shall be
defined as the net income of Newco, before any provision for Federal income
taxes, for calendar year 1998, determined in accordance with generally accepted
accounting principles ("GAAP"), but adjusted as necessary to eliminate any Prime
Contribution to Income (as herein defined). The parties agree that for purposes
of calculating Adjusted Net Income of Newco, the completed contract method of
accounting will be utilized such that income will not be recognized until
projects are completed and delivered, and the percentage of completion method of
accounting previously utilized by AK will no longer be utilized.
The parties agree that in applying the completed contract method of
accounting to the measurement of Adjusted Net Income, if a project is
substantially complete at the end of calendar year 1998, and the only reason for
such project not being completed during calendar year 1998 is due to delays by
third parties beyond the control of Newco, such as failure to pay for a
completed project and take delivery thereof (in the absence of bankruptcy,
insolvency, contract disputes or other similar performance issues), or failure
of a third party to provide necessary equipment to
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complete a project, then the parties will evaluate such cases, on a case-by-case
basis and engage in good faith negotiations as to whether, and to what extent,
to include the projected income therefrom in the determination of Adjusted Net
Income of Newco.
For purposes of this Agreement, the "Prime Contribution to Income" shall be
deemed to mean all revenue, less only total associated cost of sales (including
associated indirect cost of sales), attributable to any business done by Newco
with or for Prime Medical Services, Inc., a Delaware corporation ("Prime
Medical") or any corporation, partnership, limited liability company or other
entity, any of the voting equity interests of which are owned or controlled,
directly or indirectly, by Prime Medical. For purposes of calculating Prime
Contribution to Income, no allocation or deduction of overhead, fixed costs or
indirect costs (other than associated indirect costs properly included in cost
of sales) of Newco will be taken into consideration. The parties acknowledge and
agree that AK has, prior to the Effective Time, been allocating certain
variable, direct costs to general and administrative expenses, and that such
costs would be more appropriately allocated to cost of sales for purposes of
calculating both Adjusted Net Income and Prime Contribution to Income, in
accordance with GAAP. A description of such previously misclassified variable
direct costs is set forth on Schedule 1.5 hereto, and the parties agree that,
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notwithstanding the inconsistency with methodology previously utilized by AK,
such items will be included in variable direct costs attributable to specific
projects for purposes of calculating both Adjusted Net Income and Prime
Contribution to Income for purposes of this Agreement. None of the amortization
expense incurred by Newco in 1998 as a result of amortizing any goodwill created
upon the contribution by Prime to Newco of Prime's
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interest in the Assets will be taken into consideration in calculating the
Adjusted Net Income of Newco for purposes of this Section.
The parties hereby further agree that the unanimous agreement of the
managers and members of Newco must be obtained prior to Newco undertaking, or
committing to undertake, any transactions during the 1998 calendar year (other
than the GE Certification Project described below) not within the ordinary
course of Newco's business (consistent with such business as conducted by AK
prior to the Effective Time).
As an exception to the concept in the preceding paragraph, the parties
acknowledge that AK may undertake the development of a new type of trailer for
General Electric (referred to generally herein as the "GE Certification
Project"). The parties agree that the non-recurring capitalizable costs of
obtaining certification by GE of Newco as a vendor for this new type of trailer
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will be $250,000, of which the parties agree that $50,000 will be amortized in
calendar year 1998. The parties agree that this amortization expense of $50,000
(but not greater than $50,000) will be excluded from the calculation of Adjusted
Net Income of Newco for calendar year 1998 if (i) on December 31, 1998 there is
a written, binding purchase order that has been received and accepted by Newco
for at least two of the GE Certification Project trailers (which may include the
prototype trailer), (ii) the price of the two GE Certification Project trailers
described in (i) would involve a gross profit margin to Newco of at least 10%
for each of the trailers, and (iii) Newco has received a deposit against the
delivery of the two GE Certification Project trailers described in (i) and (ii)
that is comparable to the standard deposit ordinarily received by Newco with
respect to mobile lithotripsy trailer purchase orders. The parties agree that in
the event all requirements of the preceding sentence are met at December 31,
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1998, then the $50,000 of amortization expense related to the GE certification
(but not any other cost of sales incurred by Newco with respect to the GE
Certification Project), will be excluded for purposes of calculating Adjusted
Net Income under this Section.
In calculating Adjusted Net Income, any administrative services or
functions previously undertaken by AK which are provided for Newco by Prime
Medical or one of Prime Medical's affiliates during 1998 (such as accounting or
payroll functions) will be charged to Newco by Prime Medical or its applicable
affiliate at the lesser of (i) the fair market value for such services or
functions, or (ii) AK's cost of providing or obtaining such services or
functions prior to the Effective Time; and the amount so determined will be
deducted in calculating Adjusted Net Income for Newco.
In the event there is a dispute between AK and Prime Medical as to the
calculation of Adjusted Net Income, the parties agree that upon written request
from either party, and at least thirty (30) days advance written notice (during
which the parties agree to undertake to resolve such dispute amongst
themselves), the dispute will be submitted to a determination by a national
accounting firm selected by the mutual agreement of AK and Prime, whose written
decision thereon shall be binding on all parties hereto. In the event Prime and
AK cannot agree on such accounting firm, KPMG Peat Marwick will make the
selection of a firm (other than itself) for such purposes. Newco shall pay the
fees and expenses charged by any such national accounting firm.
The following table reflects the amounts of additional payments due, if
any, to AK based on Adjusted Net Income. The maximum additional payment which
would ever be due is $1,050,000. The amounts shown in the right hand column
below are not to be added together,
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but rather are alternative, total additional payment amounts depending on where
Adjusted Net Income, determined in accordance with this Section, falls among the
ranges referenced in the left hand column below. Any additional payment due
which is not in dispute will be payable, in cash or wire transferred funds, to
AK on or before March 31, 1999; provided, in the event of a dispute as to the
determination of Adjusted Net Income, any additional disputed payment ultimately
determined to be due will be paid within thirty (30) days after the dispute is
resolved by the written decision of the national accounting firm as herein
provided.
1998 ADJUSTED NET INCOME ADDITIONAL PAYMENT DUE
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Under $950,000 None
$950,000 to $1,099,999 $ 262,500
$1,100,000 to $1,249,999 $ 525,000
$1,250,000 to $1,399,999 $ 787,500
$1,400,000 or greater $1,050,000
1.6 PAYMENT OF PURCHASE PRICE. The Purchase Price shall be paid in
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immediately available funds at the Closing.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF PRIME
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Prime represents and warrants to AK, Xxxxxxx and Sodomire that each of the
following matters is true and correct in all respects as of the Closing (with
the understanding that AK, Xxxxxxx and Sodomire are relying materially on such
representations and warranties in entering into and performing this Agreement):
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2.1 DUE ORGANIZATION AND PRINCIPAL EXECUTIVE OFFICE. Prime is a
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corporation duly organized, validly existing, and in good standing under the
laws of the State of New Jersey and has full corporate power and authority to
carry on its business as now conducted and as proposed to be conducted. Prime
is a subsidiary of Prime Medical Services, Inc., a Delaware corporation ("Prime
Medical"). Prime's principal executive offices are located at 0000 Xxxxxxx xx
Xxxxx Xxxxxxx, Xxxxxx, Xxxxx 00000.
2.2 DUE AUTHORIZATION. Prime has full corporate power and authority to
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enter into and perform this Agreement and each other agreement, instrument and
document required to be executed by Prime in connection herewith. This
Agreement and each other agreement, instrument, and document required herein to
be executed by Prime have been duly and validly authorized, executed and
delivered by Prime and constitute the valid and binding obligations of Prime
enforceable against it in accordance with its terms. The execution, delivery,
and performance of this Agreement and each other agreement, instrument, and
document required herein to be executed by Prime will not (a) violate any
federal, state, county, or local law, rule, or regulation applicable to Prime or
its properties, (b) violate or conflict with, or permit the cancellation of, any
agreement to which Prime is a party or by which it or its properties are bound,
(c) permit the acceleration of the maturity of any indebtedness of, or any
indebtedness secured by the property of, Prime or (d) violate or conflict with
any provision of the certificate of incorporation or bylaws of Prime. No
action, consent, or approval of, or filing with, any federal, state, county, or
local governmental authority is required by Prime in connection with the
execution, delivery or performance of this Agreement (or any agreement,
instrument or other document executed in connection herewith by Prime).
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2.3 BROKERS AND FINDERS. Prime has not engaged, or caused to be incurred
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any liability to, any finder, broker, or sales agent in connection with the
execution, delivery, or performance of this Agreement or the transactions
contemplated hereby.
2.4 CLAIMS AND PROCEEDINGS. Prime is not a party to any claims, actions,
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suits, proceedings, or investigations, at law or in equity, before or by any
court, municipal or other governmental department, commission, board, agency, or
instrumentality which seeks to restrain or prohibit the carrying out of the
transactions contemplated by this Agreement or to challenge the validity of such
transactions or any part thereof or seeking damages on account thereof; and, to
the knowledge of Prime, no such claim, action, suit, proceeding or investigation
is threatened.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF AK, XXXXXXX AND SODOMIRE
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AK, Xxxxxxx and Sodomire each, jointly and severally, hereby represent and
warrant to Prime that each of the following matters is true and correct in all
respects as of the Closing (with the understanding that Prime is relying
materially on each such representation and warranty in entering into and
performing this Agreement):
3.1 DUE ORGANIZATION. AK is a corporation duly organized, validly
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existing, and in good standing under the laws of the State of Illinois and has
full power and authority to carry on its business as now conducted and as
proposed to be conducted. Xxxxxxx and Sodomire are the only shareholders of AK.
Complete and correct copies of the Articles of Incorporation and bylaws of AK,
and all amendments thereto, have been delivered to Prime. AK is qualified to do
business and is in good standing in the states set forth on Schedule 3.1
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attached hereto, which
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states represent every jurisdiction where such qualification is required for the
conduct of AK's business as conducted on the Closing Date.
3.2 SUBSIDIARIES. AK does not directly or indirectly have (or possess any
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options or other rights to acquire) any subsidiaries or any direct or indirect
ownership interests in any person, business, corporation, partnership,
association, joint venture, trust, or other entity.
3.3 DUE AUTHORIZATION. The Sellers have full power and authority to enter
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into and perform this Agreement and each other agreement, instrument, and
document required to be executed by them in connection herewith. The execution,
delivery, and performance of this Agreement and such other agreements,
instruments, and documents have been duly authorized by all necessary corporate
action of AK. This Agreement has been duly and validly executed and delivered
by the Sellers and constitutes a valid and binding obligation of the Sellers
enforceable against them in accordance with its terms. The execution, delivery,
and performance of this Agreement, and each other agreement, instrument and
document required herein to be executed by the Sellers will not (a) violate any
federal, state, county, or local law, rule, or regulation applicable to the
Sellers or the Assets, (b) violate or conflict with, or permit the cancellation
of, any agreement to which any of the Sellers is a party, or by which any Seller
or its properties are bound, or result in the creation of any lien, security
interest, charge, or encumbrance upon any of such properties, (c) permit the
acceleration of the maturity of any indebtedness of, or any indebtedness secured
by the property of, AK, or (d) violate or conflict with any provision of the
Articles of Incorporation or bylaws of AK. No action, consent, or approval of,
or filing with, any federal, state, county or local governmental authority is
required by any of the Sellers in
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connection with the execution, delivery, or performance of this Agreement (or
any agreement or other document executed in connection herewith).
3.4 FINANCIAL STATEMENTS. The unaudited balance sheet and income
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statement of AK as of and for the six (6) months ended June 30, 1997, and the AK
prepared internal financial statements as of and for the eight (8) months ended
August 31, 1997 (collectively, the "Financial Statements") are attached hereto
as Exhibit C. The June 30, 1997 Financial Statements have been prepared in
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accordance with the Statements on Standards for Accounting and Review Services
issued by the American Institute of Certified Public Accountants, and are
materially accurate. The August 31, 1997 Financial Statements are AK prepared
internal financial statements and are materially accurate. The Financial
Statements were prepared using the accrual method of accounting and the
percentage of completion method of recognizing income from work in process.
Except for the lease obligations disclosed on Schedule 1.4 and except to the
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extent reflected or provided for in the Financial Statements (including the
notes thereto), AK had no liabilities of a type that would be required to be
reflected as such in the Financial Statements (including the notes thereto).
Except as set forth in Schedule 3.4 hereto, and except for increases in cost of
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sales and expenses resulting from the operations of AK in the ordinary course of
its business consistent with past practice, since August 31, 1997 there has been
no material adverse change in the financial position, assets, results of
operations, or business of AK.
3.5 CONDUCT OF BUSINESS; CERTAIN ACTIONS. Except as set forth on Schedule
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3.5 attached hereto, since August 31, 1997, AK has conducted its business and
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operations in the ordinary course and consistent with its past practices and has
not (a) increased the compensation of any of the Sellers, or, except for wage
and salary increases made in the ordinary course of
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business and consistent with the past practices of AK, increased the
compensation of any other employees of AK, (b) made capital expenditures
exceeding $5,000 individually or $20,000 in the aggregate, (c) sold any asset
(or any group of related assets) in any transaction (or series of related
transactions) in which the purchase price for such asset (or group of related
assets) exceeded $20,000 (other than sales of inventory in the ordinary course
of business), (d) discharged or satisfied any lien or encumbrance or paid any
obligation or liability, absolute or contingent, other than current liabilities
incurred and paid in the ordinary course of business, (e) made or guaranteed any
loans or advances to any party whatsoever, (f) suffered or permitted any lien,
security interest, claim, charge, or other encumbrance to arise or be granted or
created against or upon any of the assets of AK, real or personal, tangible or
intangible, (g) canceled, waived, or released any of AK's debts, rights, or
claims against third parties, (h) amended the Articles of Incorporation or
bylaws of AK, (i) made or paid any severance or termination payment to any
employee or consultant in excess of $5,000, (j) made any change in the method of
accounting of AK, (k) made any investment or commitment therefor in any person,
business, corporation, association, partnership, joint venture, trust, or other
entity, (l) except as set forth on Schedule 3.11 and Schedule 3.15, made,
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entered into, amended, or terminated any written employment contract, created,
made, amended, or terminated any bonus, stock option, pension, retirement,
profit sharing, or other employee benefit plan or arrangement, or withdrawn from
any "multi-employer plan" (as defined in the Internal Revenue Code of 1986, as
amended (the "Code")) so as to create any liability under ERISA (as hereinafter
defined) to any entity, (m) amended, terminated or experienced a termination of
any material contract, agreement, lease, franchise, or license to which AK is a
party, (n) entered into any other material transactions
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except in the ordinary course of business, (o) entered into any contract,
commitment, agreement, or understanding to do any acts described in the
foregoing clauses (a)-(n) of this Section, (p) suffered any material damage,
destruction, or loss (whether or not covered by insurance) to any assets, (q)
experienced any strike, slowdown, or demand for recognition by a labor
organization by or with respect to any of the employees of AK, or (r)
experienced or effected any shutdown, slow-down, or cessation of any operations
conducted by, or constituting part of, AK.
3.6 OWNERSHIP OF ASSETS: LICENSES, PERMITS, ETC. AK has good and
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marketable title to all of the Assets subject only to the liens, security
interests, claims and encumbrances specifically described on Schedule 3.6. AK
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has such property and assets, real, personal and mixed, tangible and intangible,
including leases and other contracts, which are required for, or used in
connection with, the operation of AK as currently conducted. The Assets are in
good operating condition and repair, subject to ordinary wear and tear, taking
into account the respective ages of the properties involved and are adequate for
the conduct of AK's business. Attached hereto as Schedule 3.6 is a list of all
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federal, state, county, and local governmental licenses, certificates and
permits held or applied for by AK. AK has complied in all material respects,
and AK is in compliance in all material respects, with the terms and conditions
of any such licenses, certificates and permits. No additional license,
certificate, or permit is required from any federal, state, county, or local
governmental agency or body thereof in connection with the conduct of the
business of AK. No claim has been made by any governmental authority (and, to
the knowledge of Sellers, no such claim has been threatened) to the effect that
a license, permit, certificate, or order not possessed by AK is necessary in
respect of the business
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conducted by AK. All of the licenses, permits, and certificates noted on the
attached Schedule 3.6 are freely assignable to Newco.
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3.7 ENVIRONMENTAL ISSUES.
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(a) For purposes of this Agreement, the term "environmental laws"
shall mean all laws relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling, or the emission,
discharge, or release, of any pollutant, contaminant, chemical, or industrial
toxic or hazardous substance or waste and any order related thereto.
(b) AK has complied in all material respects with and obtained all
authorizations and made all filings required by all applicable environmental
laws. The properties occupied or used by AK have not been contaminated with any
hazardous wastes, hazardous substances, or other hazardous or toxic materials in
violation of any applicable environmental law, the violation of which could have
a material adverse impact on the business or financial position of AK.
(c) AK has not received any notice from the United States
Environmental Protection Agency that it is a potentially responsible party under
the Comprehensive Environmental Response, Compensation and Liability Act
("Superfund Notice"), any citation from any federal, state or local governmental
authority for non-compliance with its requirements with respect to air, water or
environmental pollution, or the improper storage, use or discharge of any
hazardous waste, other waste or other substance or other material pertaining to
its business ("Citations") or any written notice from any private party alleging
any such non-compliance; and there are no pending or unresolved Superfund
Notices, Citations or written notices from private parties alleging any such
non-compliance.
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3.8 INTELLECTUAL PROPERTY RIGHTS. There are no patents, trademarks,
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tradenames, or copyrights, and no applications therefor, owned by or registered
in the name of AK or in which AK has any right, license, or interest. AK is not
a party to any license agreements, either as licensor or licensee, with respect
to any patents, trademarks, tradenames, or copyrights. AK has not received any
notice that it is infringing any patent, trademark, tradename, or copyright of
others.
3.9 COMPLIANCE WITH LAWS. AK has complied in all material respects, and
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AK is in compliance in all material respects, with all federal, state, county,
and local laws, rules, regulations, and ordinances currently in effect and
applicable to its business. No claim has been made by any governmental
authority (and, to the knowledge of Sellers, no such claim has been threatened)
against AK to the effect that the business conducted by AK fails to comply with
any law, rule, regulation, or ordinance.
3.10 INSURANCE. Attached hereto as Schedule 3.10 is a list of all
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policies of fire, liability, business interruption, and other forms of insurance
and all fidelity bonds held by or applicable to AK at any time within the past
three (3) years, which schedule sets forth in respect of each such policy the
policy name, policy number, carrier, term, type of coverage, deductible amount
or self-insured retention amount, limits of coverage, and annual premium. To
the knowledge of Sellers, no event directly relating to AK has occurred which
will result in a retroactive upward adjustment of premiums under any such
policies or which is likely to result in any prospective upward adjustment in
such premiums. There have been no material changes in the type of insurance
coverage maintained by AK during the past three (3) years, including without
limitation any change which has resulted in any period during which AK had no
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insurance coverage. Excluding insurance policies which have expired and been
replaced, no insurance policy of AK has been canceled within the last three (3)
years and, to the knowledge of Sellers, no threat has been made to cancel any
insurance policy of AK within such period.
3.11 EMPLOYEE BENEFIT MATTERS. Except as set forth on Schedule 3.11, AK
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does not maintain nor does it contribute nor is it required to contribute to any
"employee welfare benefit plan" (as defined in section 3(1) of the Employee
Retirement Income Security Act of 1974 (and any sections of the Code amended by
it) and all regulations promulgated thereunder, as the same have from time to
time been amended ("ERISA")) or any "employee pension benefit plan" (as defined
in ERISA). AK does not presently maintain and has never maintained, or had any
obligation of any nature to contribute to, a "defined benefit plan" within the
meaning of the Code.
3.12 CONTRACTS AND AGREEMENTS. Attached hereto as Schedule 3.12 is a list
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of all written or oral contracts, commitments, leases, and other agreements
(including, without limitation, promissory notes, loan agreements, and other
evidences of indebtedness) to which AK is a party or by which AK or its
properties are bound, pursuant to which the obligations thereunder of any party
thereto are, or are contemplated as being, in respect of any such individual
contracts, commitments, leases, or other agreements during any year during the
term thereof, $10,000 or greater, or which are otherwise material to the
business of AK (including, without limitation, all mortgages, deeds of trust,
security agreements, pledge agreements, service agreements, and similar
agreements and instruments and all confidentiality agreements). AK is not and,
to the best knowledge of Sellers, no other party thereto is in default (and no
event has occurred which, with the passage of time or the giving of notice, or
both, would constitute a default by AK or, to the best knowledge of Sellers, by
any other party thereto) under any such contracts, commitments, leases, or other
agreements. AK has not waived any material right under any such
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contracts, commitments, leases, or other agreements. AK has not guaranteed any
obligations of any other person.
3.13 CLAIMS AND PROCEEDINGS. Attached hereto as Schedule 3.13 is a list
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and description of all claims, actions, suits, proceedings, and investigations
pending or, to the knowledge of Sellers, threatened against AK or affecting any
of its properties or assets, at law or in equity, or before or by any court,
municipal or other governmental department, commission, board, agency, or
instrumentality. Except as set forth on Schedule 3.13 attached hereto, none of
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such claims, actions, suits, proceedings, or investigations will result in any
liability or loss to AK which (individually or in the aggregate) is material,
and AK has not been, and AK is not now, subject to any order, judgment, decree,
stipulation, or consent of any court, governmental body, or agency. No inquiry,
action, or proceeding has been asserted, instituted, or, to the best knowledge
of Sellers, threatened against AK to restrain or prohibit the carrying out of
the transactions contemplated by this Agreement or to challenge the validity of
such transactions or any part thereof or seeking damages on account thereof.
3.14 TAXES. AK has been filing its tax returns as a subchapter S
-----
corporation under the Internal Revenue Code. All federal, foreign, state,
county, and local income, gross receipts, excise, property, franchise, license,
sales, use, withholding, and other tax (collectively, "Taxes") returns, reports,
and declarations of estimated tax (collectively, "Returns") which were required
to be filed by AK on or before the date hereof have been filed within the time
(including any applicable extensions) and in the manner provided by law, and all
such Returns are true and correct in all material respects and accurately
reflect the Tax liabilities of AK. All Taxes,
18
assessments, penalties, and interest which have become due pursuant to such
Returns have been paid or adequately accrued in the Financial Statements. The
provisions for Taxes reflected on the balance sheet contained in the Financial
Statements are adequate to cover all of AK's estimated Tax liabilities for the
respective periods then ended and all prior periods. As of the Closing Date, AK
will not owe any Taxes for any period prior to the Closing which are not
reflected on the Financial Statements, except for Taxes attributable to the
operations of AK between the Effective Time and the Closing Date. AK has not
executed any presently effective waiver or extension of any statute of
limitations against assessments and collection of Taxes. There are no pending
or, to the best knowledge of Sellers, threatened claims, assessments, notices,
proposals to assess, deficiencies, or audits, other than an excise tax audit
being conducted as disclosed on Schedule 3.13, (collectively, "Tax Actions")
against AK with respect to any Taxes owed or allegedly owed by AK. Otherwise,
AK's Returns have not been audited. There are no tax liens on any of the assets
of AK. Proper and accurate amounts have been withheld and remitted by AK from
and in respect of all persons from whom it is required by applicable law to
withhold for all periods in compliance with the tax withholding provisions of
all applicable laws and regulations. AK is not a party to any tax sharing
agreement.
3.15 PERSONNEL. Attached hereto as Schedule 3.15 is a list of names and
--------- -------------
current annual rates of compensation of the employees of AK whose rates of
compensation, on an annualized basis, during calendar year 1997 (including base
salary, bonus, commissions, and incentive pay) are expected to exceed $20,000.
Except as set forth on Schedule 3.15, there are no bonus, profit sharing,
-------------
percentage compensation, company automobile, club membership, and other like
benefits, if any, paid or payable by AK to such employees from December 31, 1996
through the
19
Closing Date. Schedule 3.15 attached hereto also contains a brief description of
-------------
all material terms of employment agreements and confidentiality agreements to
which AK is a party and all severance benefits which any director, officer,
employee, agent or sales representative of AK is or may be entitled to receive.
AK has delivered to Prime accurate and complete copies of all such employment
agreements, confidentiality agreements, and all other agreements, plans, and
other instruments to which AK is a party and under which its employees are
entitled to receive benefits of any nature. There is no pending or, to the best
knowledge of Sellers, threatened (i) labor dispute or union organization
campaign relating to AK, (ii) claims against AK or the Sellers by any employees
of AK (other than those certain Workers' Compensation claims specifically
described on Schedule 3.13), or (iii) terminations, resignations or retirements
-------------
of any employees of AK. None of the employees of AK are represented by any labor
union or organization. There is no unfair labor practice claim against AK before
the National Labor Relations Board or any strike, labor dispute, work slowdown,
or work stoppage pending or, to the best knowledge of Sellers, threatened
against or involving AK.
3.16 BUSINESS RELATIONS. Sellers have not been notified that any supplier
------------------
or customer of AK (other than American Kidney Stone Management, Ltd. of
Columbus, Ohio who attributed a decision not to purchase from AK because of the
relationship with Prime contemplated herein, which has been communicated to
Prime) will cease or refuse to do business with AK or Newco in the same manner
as previously conducted with AK as a result of or within a year after the
consummation of the transactions contemplated hereby. AK has not received any
notice of any disruption (including delayed deliveries or allocations by
suppliers) in the availability of the materials or products used by AK.
20
3.17 ACCOUNTS RECEIVABLE. Except as set forth on Schedule 3.17 attached
------------------- -------------
hereto, all of the accounts, notes, and loans receivable that have been recorded
on the books of AK are bona fide and represent amounts validly due.
3.18 AGENTS. Except as set forth on Schedule 3.18 attached hereto, AK has
------ -------------
not designated or appointed any person (other than AK's employees, officers and
directors) or other entity to act for it or on its behalf pursuant to any power
of attorney or any agency which is presently in effect.
3.19 INDEBTEDNESS TO AND FROM SHAREHOLDERS, DIRECTORS AND EMPLOYEES.
--------------------------------------------------------------
Except as set forth on Schedule 3.19 attached hereto, AK does not owe any
-------------
indebtedness to any of its shareholders, directors or employees or have
indebtedness owed to it from any of its shareholders, directors or employees,
excluding indebtedness for travel advances or similar advances for expenses
incurred on behalf of and in the ordinary course of business of AK and
consistent with AK's past practices. As of the Effective Time and the Closing
Date all amounts due AK from any shareholder, director, officer or employee of
AK (or any of their family members) shall have been repaid in full.
3.20 COMMISSION SALES CONTRACTS. Except as disclosed in Schedule 3.20
-------------------------- -------------
attached hereto, AK does not employ or have any relationship with any
individual, corporation, partnership, or other entity whose compensation from AK
is in whole or in part determined on a commission basis.
3.21 CERTAIN CONSENTS. Except as set forth on Schedule 3.21 attached
---------------- -------------
hereto, there are no consents, waivers, or approvals required to be executed
and/or obtained by any Sellers from
21
third parties (including, without limitation, the spouses of Xxxxxxx and
Sodomire) in connection with the execution, delivery, and performance of this
Agreement.
3.22 BROKERS. No Seller has engaged, or caused any liability to be
-------
incurred to, any finder, broker, or sales agent in connection with the
execution, delivery, or performance of this Agreement or the transactions
contemplated hereby.
3.23 INTEREST IN COMPETITORS, SUPPLIERS, AND CUSTOMERS. Except as set
-------------------------------------------------
forth on Schedule 3.23 attached hereto, no Seller or any affiliate of any
-------------
Seller, and to the knowledge of Sellers no employee of AK or any affiliate of
any employee of AK, has any ownership interest in any competitor, customer or
supplier of AK or any property used in the operation of the business of AK.
3.24 WARRANTIES. Except as set forth on Schedule 3.24, AK has not made any
---------- -------------
warranties or guarantees to third parties with respect to any products sold or
services rendered by it. Except as set forth on Schedule 3.24 attached hereto,
-------------
no claims for breach of product or service warranties have been made against AK
since January 1, 1996.
3.25 NO DEFAULTS. No Seller is aware of any breach or default by any
-----------
other Seller of any of the representations, warranties, covenants or agreements
contained herein.
ARTICLE IV
COVENANTS
---------
4.1 NAME CHANGE. The Sellers agree that at, or within thirty (30) days
-----------
after, the Closing Date, AK will change its name to a name that does not contain
the letters "AK" in combination, or the word "Associates".
22
4.2 COOPERATION RELATING TO FINANCIAL STATEMENTS. Sellers agree to
--------------------------------------------
cooperate with Prime in the preparation of any financial statements of AK and/or
Newco which Prime or its affiliates may be required by any applicable law to
prepare.
4.3 SHAREHOLDER AND DIRECTOR ACTION. Each of Xxxxxxx and Sodomire agree
-------------------------------
to vote their shares in AK, and to take such actions as may be necessary in
their capacity as directors of AK, to authorize and direct AK to perform all of
its obligations under this Agreement and under the Organizational Documents.
Furthermore, Xxxxxxx and Sodomire each agree that, until such time as neither
Xxxxxxx nor Sodomire is an employee of Newco, they will not authorize the
issuance of any additional capital stock of AK to any third party, or cause or
allow any additional directors to be elected to the board of directors of AK.
4.4 CAPITAL CONTRIBUTIONS. The parties acknowledge and agree that initial
---------------------
cash working capital of $400,000 is required for the successful operations of
Newco after the Closing. Accordingly, at the Closing, Prime and AK agree to
contribute cash or immediately available funds to Newco in the amount of
$300,000 and $100,000, respectively. Thereafter, any capital contributions to
Newco shall be governed by the Organizational Documents.
ARTICLE V
Conditions to Closing
---------------------
5.1 PRIME'S CLOSING OBLIGATIONS. At the Closing, Prime shall:
---------------------------
(a) pay the Purchase Price to AK;
(b) execute and deliver the Assignment and Assumption Agreement and
the Organizational Documents;
23
(c) deliver such good standing certificates, officer certificates, and
similar documents and certificates as counsel for AK may reasonably require;
(d) cause Prime Medical to execute and deliver a Closing Certificate
to AK in the form attached hereto as Exhibit K; and
---------
(e) make the capital contributions to Newco required pursuant to
Section 4.4 above.
5.2 AK'S CLOSING OBLIGATIONS. At the Closing, AK shall:
------------------------
(a) execute and deliver the Assignment and Assumption Agreement and
the Organizational Documents;
(b) deliver such good standing certificates, officer and/or
partnership certificates, and similar documents and certificates as counsel for
Prime may reasonably require; and
(c) make the capital contributions to Newco required pursuant to
Section 4.4 above.
5.3 NEWCO'S CLOSING OBLIGATIONS. At the Closing, Newco shall execute and
---------------------------
deliver the Assignment and Assumption Agreement.
ARTICLE VI
INDEMNIFICATION OF PRIME AND NEWCO
----------------------------------
6.1 INDEMNIFICATION OF PRIME AND NEWCO. The Sellers, each jointly and
----------------------------------
severally, agree to indemnify and hold harmless Prime and, following the
Closing, Newco and each officer, director, employee, and affiliate of Prime and,
following the Closing, Newco (collectively, the
24
"Prime Indemnified Parties") from and against any and all damages, losses,
claims, liabilities, demands, charges, suits, penalties, costs, and expenses
(including court costs and attorneys' fees and expenses incurred in
investigating and preparing for any litigation or proceeding) (collectively,
"Indemnified Costs") in connection with the commencement or assertion of any
action, proceeding, demand, or claim by a third party (collectively, a "third-
party action") which any of the Prime Indemnified Parties may sustain, arising
out of (a) any breach or default by any Seller of any of the representations,
warranties, covenants or agreements contained in this Agreement or any agreement
or document executed in connection herewith (including, without limitation, the
Organizational Documents), (b) any obligation or liability of AK not assumed by
Newco pursuant to the Assignment and Assumption Agreement, or (c) any
obligations or liabilities with respect to any claims arising out of events that
occurred prior to the Closing.
6.2 DEFENSE OF THIRD-PARTY CLAIMS. A Prime Indemnified Party shall give
-----------------------------
prompt written notice to Sellers of the commencement or assertion of any third
party action in respect of which such Prime Indemnified Party shall seek
indemnification hereunder. Any failure so to notify Sellers shall not relieve
Sellers from any liability that they may have to such Prime Indemnified Party
under this ARTICLE unless the failure to give such notice materially and
adversely prejudices Sellers. Sellers shall have the right to assume control of
the defense of, settle, or otherwise dispose of such third-party action on such
terms as it deems appropriate; provided, however, that:
(a) The Prime Indemnified Party shall be entitled, at his, her, or its
own expense, to participate in the defense of such third-party action;
25
(b) Sellers shall obtain the prior written approval of the Prime
Indemnified Party, which approval shall not be unreasonably withheld, before
entering into or making any settlement, compromise, admission, or acknowledgment
of the validity of such third-party action or any liability in respect thereof
if, pursuant to or as a result of such settlement, compromise, admission, or
acknowledgment, injunctive or other equitable relief would be imposed against
the Prime Indemnified Party;
(c) Sellers shall not consent to the entry of any judgment or enter
into any settlement that does not include as an unconditional term thereof the
execution and delivery of a release from all liability in respect of such third-
party action by each claimant or plaintiff to, and in favor of, each Prime
Indemnified Party; and
(d) Sellers shall not be entitled to control (but shall be entitled to
participate at their own expense in the defense of), and the Prime Indemnified
Party shall be entitled to have sole control over, the defense or settlement,
compromise, admission, or acknowledgment of any third-party action as to which
Sellers fail to assume the defense within thirty (30) days; provided, however,
-------- -------
that the Prime Indemnified Party shall make no settlement, compromise,
admission, or acknowledgment which would give rise to liability (other than
liability to Prime Indemnified Parties under this Agreement) on the part of
Sellers or AK, without the prior written consent of Sellers.
(e) Sellers shall make payments of all amounts required to be made
pursuant to the foregoing provisions of this ARTICLE to or for the account of
the Prime Indemnified Party from time to time promptly upon receipt of bills or
invoices relating thereto or when otherwise due and payable, provided that the
Prime Indemnified Party has agreed in writing to reimburse
26
Sellers for the full amount of such payments if the Prime Indemnified Party is
ultimately determined not to be entitled to such indemnification.
(f) The parties hereto shall extend reasonable cooperation in
connection with the defense of any third-party action pursuant to this ARTICLE
and, in connection therewith, shall furnish such records, information, and
testimony and attend such conferences, discovery proceedings, hearings, trials,
and appeals as may be reasonably requested.
ARTICLE VII
INDEMNIFICATION OF SELLERS
--------------------------
7.1 INDEMNIFICATION OF SELLERS. Prime agrees to indemnify and hold
--------------------------
harmless Sellers (collectively, the "Seller Indemnified Parties") from and
against any and all Indemnified Costs in connection with the commencement or
assertion of any third party action which any of Seller Indemnified Parties may
sustain, arising out of any breach or default by Prime of any of the
representations, warranties, covenants or agreements contained in this Agreement
or any agreement or document executed in connection herewith (including, without
limitation, the Organizational Documents).
7.2 DEFENSE OF THIRD-PARTY CLAIMS. A Seller Indemnified Party shall give
-----------------------------
prompt written notice to Prime of the commencement or assertion of any third
party action in respect of which such Seller Indemnified Party shall seek
indemnification hereunder. Any failure so to notify Prime shall not relieve
Prime from any liability that it may have to such Seller Indemnified Party under
this ARTICLE unless the failure to give such notice materially and adversely
prejudices Prime. Prime shall have the right to assume control of the defense
of, settle, or
27
otherwise dispose of such third-party action on such terms as it deems
appropriate; provided, however, that:
(a) The Seller Indemnified Party shall be entitled, at his or its own
expense, to participate in the defense of such third-party action;
(b) Prime shall obtain the prior written approval of the Seller
Indemnified Party, which approval shall not be unreasonably withheld, before
entering into or making any settlement, compromise, admission, or acknowledgment
of the validity of such third-party action or any liability in respect thereof
if, pursuant to or as a result of such settlement, compromise, admission, or
acknowledgment, injunctive or other equitable relief would be imposed against
the Seller Indemnified Party;
(c) Prime shall not consent to the entry of any judgment or enter into
any settlement that does not include as an unconditional term thereof the
execution and delivery of a release from all liability in respect of such third-
party action by each claimant or plaintiff to, and in favor of, each Seller
Indemnified Party; and
(d) Prime shall not be entitled to control (but shall be entitled to
participate at its own expense in the defense of), and the Seller Indemnified
Party shall be entitled to have sole control over, the defense or settlement,
compromise, admission, or acknowledgment of any third-party action as to which
Prime fails to assume the defense within thirty (30) days; provided, however,
-------- -------
that the Seller Indemnified Party shall make no settlement, compromise,
admission, or acknowledgment which would give rise to liability (other than
liability to Seller Indemnified Parties under this Agreement) on the part of
Prime without the prior written consent of Prime.
28
(e) Prime shall make payments of all amounts required to be made
pursuant to the foregoing provisions of this ARTICLE to or for the account of
the Seller Indemnified Party from time to time promptly upon receipt of bills or
invoices relating thereto or when otherwise due and payable, provided that the
Seller Indemnified Party has agreed in writing to reimburse Prime for the full
amount of such payments if the Seller Indemnified Party is ultimately determined
not to be entitled to such indemnification.
(f) The parties hereto shall extend reasonable cooperation in
connection with the defense of any third-party action pursuant to this ARTICLE
and, in connection therewith, shall furnish such records, information, and
testimony and attend such conferences, discovery proceedings, hearings, trials,
and appeals as may be reasonably requested.
ARTICLE VIII
NONCOMPETITION AGREEMENTS
-------------------------
8.1 AGREEMENT OF SELLERS. Each of the Sellers hereby agrees that, until
--------------------
the later of (i) the fifth (5th) anniversary of the Closing Date, or (ii) two
(2) years after the termination of the employment with Newco of Xxxxxxx (for
Xxxxxxx) or Sodomire (for Sodomire) or both Xxxxxxx and Sodomire (for AK); such
Seller will not directly or indirectly, either through any kind of ownership
(other than ownership of securities of a publicly held corporation of which it
owns less than five percent (5%) of any class of outstanding securities), or as
a principal, shareholder, agent, employer, advisor, consultant, co-partner or in
any individual or representative capacity whatever, either for its own benefit
or for the benefit of any other person,
29
corporation or other entity, without the prior written consent of Prime, commit
any of the following acts, which acts shall be considered violations of this
covenant not to compete:
(a) Directly or indirectly, anywhere within the continental United
States, engage in, or provide any services related to, (i) the manufacture,
maintenance, refurbishing, repair, sale, or leasing, of mobile trailers or
coaches for medical service providers, including without limitation mobile
lithotripsy units, trailers or coaches, or mobile prostatherapy units, trailers
or coaches, or (ii) the manufacturing, design, installation, repair,
maintenance, servicing, upgrading, sale or leasing of fixed site or mobile
diagnostic imaging equipment, or (iii) provide any management services, training
or consulting services related to any of the activities described in (i) or
(ii);
(b) Directly or indirectly provide lithotripsy or prostatherapy
services, including without limitation, lithotripsy or prostatherapy patient
services, lithotripsy or prostatherapy management services, lithotripter or
prostatron leasing or marketing services, or similar services, anywhere within
the continental United States.
(c) Directly or indirectly request or advise any person, firm,
physician, corporation or other entity having a business relationship with
Prime, Newco, or any affiliate or related entity of either of them, to withdraw,
curtail, or cancel its business with Prime, Newco, or such affiliate or related
entity; or
(d) Directly or indirectly hire any employee of Prime, Newco, or any
affiliate or related entity of either of them, or induce or attempt to influence
any employee of Prime, Newco, or any such affiliate or related entity to
terminate his or her employment with Prime, Newco, or any such affiliate or
related entity.
30
8.2 AGREEMENT BY PRIME. Prime agrees that it will not, including through
------------------
its parent, Prime Medical, a subsidiary, affiliate or otherwise (except through
Newco or except as otherwise provided below), directly or indirectly, acquire or
develop any business that engages in, or provides any services to third parties
related to (i) the manufacture, maintenance, refurbishing, repair or sale of
mobile trailers or coaches for medical service providers, including without
limitation mobile lithotripsy units, trailers or coaches, or mobile
prostatherapy units, trailers or coaches, or (ii) the manufacture, design,
installation, repair, and maintenance, servicing, upgrading or sale of fixed
site or mobile diagnostic imaging equipment, or (iii) the providing of
management services, training or consulting services related to any of the
activities described in (i) or (ii).
Notwithstanding anything contained above or otherwise elsewhere herein to
the contrary, neither Prime, Prime Medical nor any of their subsidiaries or
affiliates (referred to hereinafter in this paragraph as "Prime Acquiring
Entity") shall be prohibited from acquiring any assets, businesses, corporations
or other entities, the acquisition and operation of which would otherwise
constitute a violation of the foregoing provisions of this Section 8.2 provided
either Prime or Prime Medical has provided Newco and the Sellers written notice
of its intent to entertain such acquisition, together with a reasonably detailed
description of the then contemplated terms and conditions of such acquisition,
and has offered Newco the right of first refusal to engage in such acquisition.
Newco shall have forty-five (45) days from the giving of such notice in which to
exercise its right of first refusal, and upon the expiration of such forty-five
(45) day period Newco shall be deemed to have elected not to exercise its right
of first refusal if it has failed for any reason to close, or be fully prepared
to immediately close, the acquisition on the same terms
31
as would be applicable to the Prime Acquiring Entity. If Newco elects to
exercise its right of first refusal, it must participate in the acquisition as
to all (but not less than all) of the rights and obligations that would
otherwise have been acquired and undertaken by the Prime Acquiring Entity and
any other affiliate of Prime or Prime Medical. Neither Prime, Prime Medical nor
any other affiliate of Prime or Prime Medical will be required to arrange any
financing, provide any payment security or otherwise assist Newco (through
concessions, contractual obligations or otherwise) in making such acquisition in
order to allow Newco to exercise its right of first refusal; provided that Prime
will agree to make its pro rata amount (in accordance with its percentage
membership interest) of capital contributions to Newco, along with Newco's other
members, as necessary to fund such acquisition, if additional equity capital
infusions into Newco are necessary in connection with such acquisition and if
all the members (other than Prime) agree to make, and make, their pro rata
capital contributions.
Notwithstanding anything contained herein to the contrary, it shall not be
a violation of this Agreement for Prime, Prime Medical or any of their
subsidiaries or affiliates, to utilize employees or other contract maintenance
personnel to perform routine maintenance and/or repairs with respect to any
vehicles or equipment owned or operated by Prime, Prime Medical or any of their
respective subsidiaries or affiliates, including without limitation any mobile
trailers or coaches for medical service providers, mobile lithotripsy units,
trailers or coaches, mobile prostatherapy units, trailers or coaches, or any
diagnostic imaging equipment, units, trailers or coaches.
The provisions of this Section 8.2 shall be binding and in effect until the
earlier to occur of (i) the date on which none of the Sellers or any entity, all
of whose equity ownership interests
32
are owned by one or both of the Sellers, owns a membership interest in Newco, or
(ii) the date on which any of the Sellers ceases to be bound by the agreements
and restrictions contained in Section 8.1 hereof.
8.3 AGREEMENT OF THE PARTIES. Each party hereto has reviewed and
------------------------
carefully considered the provisions of this ARTICLE and, having done so, agrees
that the restrictions applicable to them as set forth herein (a) are fair and
reasonable with respect to time, geographic area and scope, (b) are not unduly
burdensome to them, and (c) are reasonably required for the protection of the
interests of the other parties hereto for whose benefit such restrictions were
agreed upon.
Each party hereto agrees that a violation on its part of any
applicable covenant contained in this ARTICLE will cause the other parties
hereto for whose benefit such restrictions were agreed upon irreparable damage
for which remedies at law may be insufficient, and for that reason, each party
hereto agrees that the other parties shall be entitled as a matter of right to
equitable remedies, including specific performance and injunctive relief,
therefor. The right to specific performance and injunctive relief shall be
cumulative and in addition to whatever other remedies, at law or in equity, that
the other parties may have, including, specifically, recovery of additional
damages.
ARTICLE IX
POST CLOSING AGREEMENTS
-----------------------
9.1 TRANSITION OF BUSINESS. Each Seller agrees to cooperate fully with
----------------------
Prime and Newco in transitioning the business conducted, and business
relationships maintained by AK
33
prior to the Closing, to Newco after the Closing; and each Seller agrees not to
take any action or make any disclosure, including disclosures related to the
transactions contemplated by this Agreement, which might alter or impair any
relationship with any customer, or other service recipient, person or entity
which did business with AK prior to the Closing. Each Seller agrees to promptly
remit to Newco any payments received by AK or any Seller for services provided
by AK after the Effective Time or by Newco after the Closing. Furthermore,
Sellers agree to deposit any such payments received directly to a deposit
account designated and controlled by Newco or to take such other action as may
be requested by Prime to implement and maintain a system for remitting payments
due Newco which come into the possession or control of AK or any Seller.
9.2 RATIFICATION BY NEWCO. Prime and AK agree that by executing this
---------------------
Agreement they are deemed to be voting their ownership interests in Newco to
authorize Newco to enter into and perform this Agreement as it relates to Newco.
Prime and AK agree to execute such resolutions and written consents, and take
such other actions, in their capacities as members of Newco, as either shall
reasonably require after the Closing to have Newco ratify and adopt this
Agreement as it relates to Newco, notwithstanding the official date of Newco's
creation.
9.3 EMPLOYMENT WITH NEWCO. Xxxxxxx and Sodomire each agree to work full-
---------------------
time for Newco for the two (2) year period after the Closing Date, and to enter
into Employment Agreements in the form attached hereto as Exhibit-D at the
---------
Closing. Xxxxxxx and Sodomire agree not to terminate such Employment
Agreements, or their employment with Newco thereunder, during such two (2) year
period unless Newco defaults in its obligations under the Employment Agreements,
or this Agreement.
34
ARTICLE X
MISCELLANEOUS
-------------
10.1 COLLATERAL AGREEMENTS, AMENDMENTS, AND WAIVERS. This Agreement
----------------------------------------------
(together with the documents delivered pursuant hereto) supersedes all prior
documents, understandings, and agreements, oral or written, relating to this
transaction and constitutes the entire understanding among the parties with
respect to the subject matter hereof. Any modification or amendment to, or
waiver of, any provision of this Agreement (or any document delivered pursuant
to this Agreement unless otherwise expressly provided therein) may be made only
by an instrument in writing executed by each party thereto.
10.2 SUCCESSORS AND ASSIGNS. No party's rights or obligations under this
----------------------
Agreement may be assigned without the prior written consent of all parties
hereto, except that Prime may assign its rights and obligations hereunder to any
entity, more than 50% of the voting equity ownership interests of which is at
the time owned, directly or indirectly, by Prime Medical Services, Inc., a
Delaware corporation. Furthermore, AK may, upon written notice to Prime, assign
its rights hereunder to Xxxxxxx and/or Sodomire or to any entity, all of whose
equity ownership interests are owned by AK, Xxxxxxx and/or Sodomire; provided
that in the event of an assignment to any such entity AK, Xxxxxxx and Sodomire
must first agree in writing with Prime, in form and substance reasonably
acceptable to Prime, not to transfer or issue any equity ownership interests
therein to any person or entity other than AK, Xxxxxxx or Sodomire for so long
as any provisions of this Agreement remain binding and enforceable on any party
hereto. Upon any such permitted assignment, AK and the assignee shall thereafter
be jointly and
35
severally responsible for the obligations of AK hereunder. Furthermore, no
assignment, of any type, of rights or obligations under this Agreement shall in
any way limit, modify or otherwise affect the obligations of Xxxxxxx, Sodomire
or AK pursuant to the provisions of Sections 8.1, 9.1 and 9.3 of this Agreement,
which the parties hereto acknowledge and agree to be the personal obligations of
Xxxxxxx, Sodomire and AK not subject to assignment, transfer, modification or
amendment without the express written consent of Prime in each instance. Any
assignment in violation of the foregoing shall be null and void. Subject to the
preceding sentences of this Section, the provisions of this Agreement (and,
unless otherwise expressly provided therein, of any document delivered pursuant
to this Agreement) shall be binding upon and inure to the benefit of the parties
hereto and their respective heirs, legal representatives, successors, and
assigns.
10.3 EXPENSES. Except as set forth in the following sentence, regardless
--------
of whether the transactions contemplated hereby are consummated, each party
hereto shall pay all of its costs and expenses incurred by it in connection with
this Agreement, including the fees and disbursements of its counsel. The costs
and expenses associated specifically with the formation and documentation of
Newco, including legal fees and expenses for drafting the Organizational
Documents, shall be paid or reimbursed by Newco.
10.4 INVALID PROVISIONS. If any provision of this Agreement is held to be
------------------
illegal, invalid, or unenforceable under present or future laws, such provision
shall be fully severable, this Agreement shall be construed and enforced as if
such illegal, invalid, or unenforceable provision had never comprised a part of
this Agreement, and the remaining provisions of this
36
Agreement shall remain in full force and effect and shall not be affected by the
illegal, invalid, or unenforceable provision or by its severance from this
Agreement.
10.5 WAIVER. No failure or delay on the part of any party in exercising
------
any right, power, or privilege hereunder or under any of the documents delivered
in connection with this Agreement shall operate as a waiver of such right,
power, or privilege; nor shall any single or partial exercise of any such right,
power, or privilege preclude any other or future exercise thereof or the
exercise of any other right, power or privilege.
10.6 NOTICES. Any notices required or permitted to be given under this
-------
Agreement (and, unless otherwise expressly provided therein, under any document
delivered pursuant to this Agreement) shall be given in writing and shall be
deemed received (a) when delivered personally or by courier service to the
relevant party at its address as set forth below or (b) if sent by mail, on the
third day following the date when deposited in the United States mail, certified
or registered mail, postage prepaid, to the relevant party at its address
indicated below:
Prime and Newco: Prime Kidney Stone Treatment, Inc.
0000 Xxxxxxx xx Xxxxx Xxxxxxx
Xxxxx X-000
Xxxxxx, Xxxxx 00000
Attention: President
with a copy to: Xx. Xxxxxxx X. XxXxxx
Akin, Gump, Strauss, Xxxxx & Xxxx, L.L.P.
000 Xxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
Sellers: Xx. Xxxxxx Xxxxxxx, Xx. Xxxxxxxx Xxxxxxxx, and
AK Associates, Inc.
00000 Xxxxx 00xx Xxxxxx
Xxxxxx, Xxxxxxxx 00000
with a copy to: Xx. Xxxxxxx X. Xxxxxx
Xxxxxx & Xxxxxx
00 Xxxxx Xxxxxxxx Xxxxxx, Xxxxx 0000
37
Xxxxxxx, Xxxxxxxx 00000
Each party may change its address for purposes of this Section by proper
notice to the other parties.
10.7 SURVIVAL OF REPRESENTATIONS, WARRANTIES, AND COVENANTS. Regardless
------------------------------------------------------
of any investigation at any time made by or on behalf of any party hereto or of
any information any party may have in respect thereof, all covenants,
agreements, representations, and warranties made hereunder or pursuant hereto or
in connection with the transactions contemplated hereby shall survive the
Closing.
10.8 FURTHER ASSURANCES. At, and from time to time after, the Closing,
------------------
each party shall, at the request of another party, but without further
consideration, execute and deliver such other instruments of conveyance,
assignment, assumption, transfer and delivery and take such other action as such
party may reasonably request in order more effectively to consummate the
transactions contemplated hereby.
10.09 CONSTRUCTION AND KNOWLEDGE. This Agreement and any documents or
--------------------------
instruments delivered pursuant hereto or in connection herewith shall be
construed without regard to the identity of the person who drafted the various
provisions of the same. Each and every provision of this Agreement and such
other documents and instruments shall be construed as though all of the parties
participated equally in the drafting of the same. Consequently, the parties
acknowledge and agree that any rule of construction that a document is to be
construed against the drafting party shall not be applicable either to this
Agreement or such other documents and instruments.
38
10.10 GOVERNING LAW. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Texas.
10.11 COUNTERPARTS. This Agreement may be executed in several
------------
counterparts, each of which shall constitute an original and all of which
together shall constitute one and the same instrument. Any party hereto may
execute this Agreement by signing any one counterpart.
10.12 POST EFFECTIVE TIME ADJUSTMENTS. The parties acknowledge and agree
-------------------------------
that AK has, prior to the Closing Date, been receiving revenues, making
disbursements and incurring payables and receivables pursuant to the operations
of AK in the ordinary course since September 1, 1997, including without
limitation paying payroll, payroll taxes, trade vendors and other expenses. AK
will promptly account for all such activity and the parties agree that Newco or
AK, as applicable, will reimburse the other for any net amounts due with respect
to such post-Effective Time activity.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
39
SIGNATURE PAGE TO
CONTRIBUTION AGREEMENT
PRIME: PRIME KIDNEY STONE TREATMENT, INC.
By: /s/ Xxxxxxx X. Xxxxxx
--------------------------------------------
Xxxxxxx X. Xxxxxx, President
AK: AK ASSOCIATES, INC.
By: /s/ Xxxxxx Xxxxxxx
--------------------------------------------
Printed Name: Xxxxxx Xxxxxxx
----------------------------------
Title: Vice President
-----------------------------------------
NEWCO: AK ASSOCIATES, L.L.C.
By: AK ASSOCIATES, INC. -- Member
By: /s/ Xxxxxxxx Xxxxxxxx
---------------------------------------
Printed Name: Xxxxxxxx Xxxxxxxx
-----------------------------
Title: Vice President
------------------------------------
By: PRIME KIDNEY STONE TREATMENT,
INC. -- Member
By: /s/ Xxxxxxx X. Xxxxxx
---------------------------------------
Xxxxxxx X. Xxxxxx, President
XXXXXXX: /s/ Xxxxxx Xxxxxxx
-----------------------------------------------
Xxxxxx Xxxxxxx
SODOMIRE: /s/ Xxxxxxxx Xxxxxxxx
-----------------------------------------------
Xxxxxxxx Xxxxxxxx
GUARANTY OF PRIME MEDICAL SERVICES, INC.
Prime Medical Services, Inc., a Delaware corporation, hereby agrees to guarantee
the performance of all obligations of Prime Kidney Stone Treatment, Inc., a New
Jersey corporation, under this Agreement, and by execution hereof below,
acknowledges its authority to execute this written guaranty.
PRIME MEDICAL SERVICES, INC.
By: /s/ Xxxxxxx Xxxxxx
-----------------------------------
Printed: Xxxxxxx Xxxxxx
------------------------------
Title: Sr. VP - Operations
--------------------------------
EXHIBIT-A
REGULATIONS OF
AK ASSOCIATES, L.L.C.
Organized under the Texas Limited Liability Company Act
ARTICLE I.
NAME AND LOCATION
-----------------
Section 1.1. Name. The name of this limited liability company is AK
----
ASSOCIATES, L.L.C. (the "Company").
Section 1.2. Members. The initial members of the Company shall be Prime
-------
Kidney Stone Treatment, Inc., a New Jersey corporation, and AK Associates, Inc.,
a Illinois corporation. For purposes of these Regulations, the "Members" shall
include such initial members and any new members admitted pursuant to the terms
of these Regulations, but does not include any person or entity who has ceased
to be a member in the Company.
Section 1.3. Principal Office. The principal office of the Company shall
----------------
be located in Austin, Texas, or such other location as may be selected by the
Members.
Section 1.4. Registered Agent and Address. The name of the registered
-----------------------------
agent and the address of the registered office of the Company as set forth in
the Articles of Organization of the Company are:
0000 Xxxxxxx xx Xxxxx Xxxxxxx
Xxxxx X-000
Xxxxxx, XX 00000
Attn: Xxxxxxx X. Xxxxxx
Section 1.5. Other Offices. Other offices and other facilities for the
-------------
transaction of business shall be located at such places as the Managers may from
time to time determine.
ARTICLE II.
MEMBERSHIP
----------
Section 2.1. Members' Interests. The "Membership Interest" of each Member
------------------
is set forth on Exhibit A.
---------
Section 2.2. Admission to Membership. The admission of new Members shall
-----------------------
be only by the unanimous vote of the Members. If new members are admitted,
these Regulations shall be amended to reflect each Member's revised Membership
Interest.
Section 2.3. Property Rights. No Member shall have any right, title, or
---------------
interest in any of the property or assets of the Company.
Section 2.4. Liability of Members. No Member of the Company shall be
--------------------
personally liable for any debts, liabilities, or obligations of the Company,
including under a judgment decree, or order of court.
Section 2.5. Transferability of Membership. Except as provided below,
-----------------------------
Membership Interests in the Company are transferable only with the unanimous
written consent of all Members. If such unanimous written consent is not
obtained when required, the transferee shall be entitled to receive only the
share of profits or other compensation by way of income and the return of
contributions to which the transferor Member otherwise would be entitled.
Notwithstanding the foregoing, the Membership Interests of Prime Kidney Stone
Treatment, Inc. ("Prime") may be freely transferred, without consent, to any
entity that is then owned or controlled, directly or indirectly, by Prime
Medical Services, Inc., a Delaware corporation ("Prime Medical"). Furthermore,
the Membership Interest of AK Associates, Inc. ("AK") may be freely transferred,
without consent, to any entity all of whose equity ownership interests are owned
by Xxxxxx Xxxxxxx ("Xxxxxxx") and/or Xxxxxxxx Xxxxxxxx ("Sodomire"), the sole
shareholders of AK. However, any transfer of any of the equity ownership
interests of AK, or of any such permitted transferee of AK, to any persons other
than Xxxxxxx or Sodomire, or to any other entity all of whose equity ownership
interests are not at all times owned by Xxxxxxx and/or Sodomire, shall be deemed
a transfer of Membership Interest requiring unanimous written consent of all
Members as provided above.
Section 2.6. Resignation of Members. A Member may not withdraw from the
----------------------
Company except on the unanimous consent of the remaining Members. The terms of
the Members withdrawal shall be determined by agreement between the remaining
Members and the withdrawing Member.
ARTICLE III.
MEMBERS' MEETINGS
-----------------
Section 3.1. Time and Place of Meeting. All meetings of the Members shall
-------------------------
be held at such time and at such place within or without the State of Texas as
shall be determined by the Managers.
Section 3.2. Annual Meetings. In the absence of an earlier meeting at
---------------
such time and place as the Managers shall specify, annual meetings of the
Members shall be held at the principal office of the Company on the date which
is thirty (30) days after the end of the Company's fiscal year if not a legal
holiday, and if a legal holiday, then on the next full business
2
day following, at 10:00 a.m., at which meeting the Members may transact such
business as may properly be brought before the meeting.
Section 3.3. Special Meetings. Special meetings of the Members may be
----------------
called at any time by any Member. Business transacted at special meetings shall
be confined to the purposes stated in the notice of the meeting.
Section 3.4. Notice. Written or printed notice stating the place, day and
------
hour of any Members' meeting, and, in the case of a special meeting, the purpose
or purposes for which the meeting is called, shall be delivered not less than
ten (10) days nor more than thirty (30) days before the date of the special
meeting, either personally or by mail, by or at the direction of the person
calling the meeting, to each Member entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered three (3) days after it is
deposited in the United States mail, postage prepaid, to the Member at his
address as it appears on the records of the Company at the time of mailing.
Section 3.5. Quorum. Members present in person or represented by proxy,
------
holding more than fifty percent (50%) of the total votes which may be cast at
any meeting shall constitute a quorum at all meetings of the Members for the
transaction of business. If, however, such quorum shall not be present or
represented at any meeting of the Members, the Members entitled to vote, present
in person or represented by proxy, shall have power to adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present or represented. When any adjourned meeting is
reconvened and a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
noticed. Once a quorum is constituted, the Members present or represented by
proxy at a meeting may continue to transact business until adjournment,
notwithstanding the subsequent withdrawal therefrom of such number of Members as
to leave less than a quorum.
Section 3.6. Voting. When a quorum is present at any meeting, the vote of
------
the Members, whether present or represented by proxy at such meeting, holding
more than fifty percent (50%) of the total votes which may be cast at any
meeting shall be the act of the Members, unless the vote of a different number
is required by the Texas Limited Liability Company Act (the "Act"), the Articles
of Organization or these Regulations. Each Member shall be entitled to one vote
for each percentage point represented by their Membership Interest. Fractional
percentage point interests shall be entitled to a corresponding fractional vote.
Section 3.7. Proxy. Every proxy must be executed in writing by the Member
-----
or by his duly authorized attorney-in-fact, and shall be filed with the
Secretary of the Company prior to or at the time of the meeting. No proxy shall
be valid after eleven (11) months from the date of its execution unless
otherwise provided therein. Each proxy shall be revocable unless expressly
provided therein to be irrevocable and unless otherwise made irrevocable by law.
Section 3.8. Action by Written Consent. Any action required or permitted
-------------------------
to be taken at any meeting of the Members may be taken without a meeting if a
consent in writing, setting forth the action so taken, shall be signed by all of
the Members entitled to vote with respect to the
3
subject matter thereof, and such consent shall have the same force and effect as
a unanimous vote of Members.
Section 3.9. Meetings by Conference Telephone. Members may participate in
--------------------------------
and hold meetings of Members by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in such a meeting shall
constitute presence in person at such meeting, except where a person
participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
ARTICLE IV.
MEMBERSHIP CAPITAL CONTRIBUTIONS
--------------------------------
Section 4.1. Capital Contributions. The initial capital contribution of
---------------------
each Member shall be as set forth in that certain Contribution Agreement dated
effective September 1, 1997, by and among Prime, AK Associates, Inc., Xxxxxxxx
Xxxxxxxx, Xxxxxx Xxxxxxx and the Company.
Section 4.2. Additional Contributions. No additional capital
------------------------
contributions shall be required of any Member without the approval of all the
Members to raise additional capital proportionately as to each Member.
Section 4.3. Loans from Members. If, in the reasonable discretion of the
------------------
Managers, additional funds are needed for the operations of the Company, and the
unanimous approval required by Section 4.2 cannot be obtained, upon the approval
of the Managers, any Member may (but shall not be obligated to) advance funds in
the form of a temporary loan to the Company due upon demand. All Members' loans
shall bear interest at a variable, per annum rate equal to the Prime rate (as
quoted in The Wall Street Journal, Southwest edition, from time-to-time), plus
----
three percent (3%), compounded annually, but in no event in excess of the
maximum rate of interest allowable under applicable law.
ARTICLE V.
DISTRIBUTION TO MEMBERS
-----------------------
The Managers shall determine, in their sole discretion, the amount and
timing of all distributions from the Company. Notwithstanding the foregoing, the
Members agree that any available cash accumulated by the Company in excess of a
reserve equal to the reasonably projected cash operating needs of the Company
for six (6) months, shall be distributed to the Members no less frequently than
the end of each calendar quarter. Distributions shall be divided among the
Members in accordance with their Membership Interests. Distributions in kind
shall be made on the basis of agreed value as determined by the Members.
Notwithstanding the foregoing, the Company may not make a distribution to its
Members to the extent that, immediately after giving effect to the distribution,
all liabilities of the Company, other than liabilities to the Members with
respect to their interests and liabilities for which the recourse of
4
creditors is limited to specified property of the Company, exceed the fair value
of the Company assets; except that the fair value of property that is subject to
liability for which recourse of creditors is limited, shall be included in the
Company assets only to the extent that the fair value of the property exceeds
that liability.
ARTICLE VI.
ALLOCATION OF NET PROFITS AND LOSSES FOR TAX PURPOSES
-----------------------------------------------------
For accounting and income tax purposes, all items of income, gain, loss,
deduction, and credit of the Company for any taxable year shall be allocated
among the Members in accordance with their respective Membership Interests,
except as may be otherwise required by the Internal Revenue Code of 1986, as
amended. However, any amortization expense incurred by the Company as a result
of amortizing any goodwill created upon the initial contribution by Prime of
assets to the Company at the inception of the Company shall be allocated solely
to Prime.
ARTICLE VII.
DISSOLUTION AND WINDING UP
--------------------------
Section 7.1. Dissolution. The Company shall be dissolved upon the first
-----------
of the following to occur:
(a) Forty (40) years from the date of filing the Articles of Organization
of the Company;
(b) Written consent of all Members to dissolution;
(c) The bankruptcy of a Member, unless there is at least one remaining
Member and such Member or, if more than one remaining Member, all remaining
Members agree to continue the Company and its business.
Section 7.2. Winding Up. Unless the Company is continued pursuant to
----------
Section 1(c) of this Article VII., in the event of dissolution of the Company,
the Managers shall wind up the Company's affairs as soon as reasonably
practicable. On the winding up of the Company, the Managers shall pay and/or
transfer the assets of the Company in the following order:
(a) In discharging liabilities (including loans from Members) and the
expenses of concluding the Company's affairs;
(b) The balance, if any, shall be divided between the Members in accordance
with the Members' Membership Interests.
5
ARTICLE VIII.
MANAGERS
--------
Section 8.1. Selection of Managers. Management of the Company shall be
---------------------
vested in the Managers. Initially, the Company shall have five (5) Managers,
being Xxxxxxx X. Xxxxxx, Xxxxxxx Xxxxxxxxxxx, Xxxxxx Xxxxxxxx (as the initial
Manager designees of Prime), Xxxxxxx and Sodomire (as the initial Manager
designees of AK). Thereafter, for so long as there are five (5) Managers, Prime
shall be entitled to designate three (3) of the Managers and AK shall be
entitled to designate the remaining two (2) of the Managers. Each of the Members
agrees to vote its respective Membership Interests to elect those persons as
Managers who the other Member designates as their Manager designees, and to
remove any Manager designees of the other Member which the other Member
indicates it wishes to have removed as Managers. However, the Members may, by
unanimous vote of all Members, from time to time, change the number of Managers
of the Company and remove or add Managers accordingly. A Manager shall serve as
a Manager until removed pursuant to Section 2 or 3 of this Article VIII.
Managers need not be residents of the State of Texas or Members of the Company.
Section 8.2. Resignations. Each Manager shall have the right to resign at
------------
any time upon written notice of such resignation to the Members. Unless
otherwise specified in such written notice, the resignation shall take effect
upon the receipt thereof, and acceptance of such resignation shall not be
necessary to make same effective.
Section 8.3. Removal of Managers. Any Manager may be removed, for or
-------------------
without cause, though his term may not have expired, by the unanimous vote of
all Members; provided each Member agrees to vote its respective Membership
Interests for the removal of any of the Manager designees of the other Member
upon the request of the other Member that such Manager designee be removed.
Section 8.4. General Powers. The business of the Company shall be managed
--------------
by its Managers, which may each exercise any and all powers of the Company and
do any and all such lawful acts and things as are not by the Act, the Articles
of Organization or by these Regulations directed or required to be exercised or
done by the Members, including, but not limited to, contracting for or incurring
on behalf of the Company debts, liabilities and other obligations, without the
consent of any other person, except as otherwise provided herein.
Section 8.5. Place of Meetings. The Managers of the Company may hold
-----------------
their meetings, both regular and special, either within or without the State of
Texas.
Section 8.6. Annual Meetings. The annual meeting of the Managers shall be
---------------
held without further notice immediately following the annual meeting of the
Members, and at the same place, unless by unanimous consent of the Managers that
such time or place shall be changed.
Section 8.7. Regular Meetings. Regular meetings of the Managers may be
----------------
held without notice at such time and place as shall from time to time be
determined by the Managers.
6
Section 8.8. Special Meetings. Special meetings of the Mangers may be
----------------
called by any Manager on seven (7) days notice to each Manager, with such notice
to be given personally, by mail or by telecopy, telegraph or mailgram.
Section 8.9. Quorum and Voting. At all meetings of the Managers the
-----------------
presence of at least a majority of the number of Managers shall be necessary and
sufficient to constitute a quorum for the transaction of business, and the
affirmative vote of at least a majority of the Managers present at any meeting
at which there is a quorum shall be the act of the Managers, except as may be
otherwise specifically provided by the Act, the Articles of Organization or
these Regulations. If a quorum shall not be present at any meeting of Managers,
the Managers present there may adjourn the meeting from time to time without
notice other than announcement at the meeting, until a quorum shall be present.
Section 8.10. Committees. The Managers may, by resolution passed by a
----------
majority of the Managers, designate committees, each committee to consist of one
or more Managers, which committees shall have such power and authority and shall
perform such functions as may be provided in such resolution. Such committee or
committees shall have such name or names as may be designated by the Managers
and shall keep regular minutes of their proceedings and report the same to the
Managers when required.
Section 8.11. Compensation of Managers. The Members shall have the
------------------------
authority to fix the compensation of Managers and such compensation may include
expenses.
Section 8.12. Action by Written Consent. Any action required or permitted
-------------------------
to be taken at any meeting of the Managers or of any committee designated by the
Managers may be taken without a meeting if written consent, setting forth the
action so taken, is signed by all the Managers or of such committee, and such
consent shall have the same force and effect as a unanimous vote at a meeting.
Section 8.13. Meetings by Conference Telephone. Managers or members of
--------------------------------
any committee designated by the Managers may participate in and hold a meeting
of the Managers or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in such a meeting shall
constitute presence in person at such meeting, except where a person
participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
Section 8.14. Liability of Managers. No Manager of the Company shall be
---------------------
personally liable for any debts, liabilities, or obligations of the Company,
including under a judgment, decree, or order of the court.
Section 8.15. Specific Power of Managers. The Managers shall have the
--------------------------
authority to enter into and execute all documents in relation to the formation
of the Company including, but not limited to, issuance of the Articles of
Organization and these Regulations.
7
ARTICLE IX.
NOTICES
-------
Section 9.1. Form of Notice. Whenever under the provisions of the Act,
--------------
the Articles of Organization or these Regulations notice is required to be given
to any Manager or Member, and no provision is made as to how such notice shall
be given, notice shall not be construed to mean personal notice only, but any
such notice may also be given in writing, by mail, postage prepaid, addressed to
such Manager or Member at such address as appears on the books of the Company,
or by telecopy, telegraph or mailgram. Any notice required or permitted to be
given by mail shall be deemed to be given three (3) days after it is deposited,
postage prepaid, in the United States mail as aforesaid.
Section 9.2. Waiver. Whenever any notice is required to be given to any
------
Manager or Member of the Company under the provision of the Act, the Articles of
Organization or these Regulations, a waiver thereof in writing signed by the
person or persons entitled to such notice, whether signed before or after the
time stated in such waiver, shall be deemed equivalent to the giving of such
notice.
ARTICLE X.
OFFICERS
--------
All Managers are officers of the Company. The Managers may designate one
or more persons who are not Managers of the Company to serve as officers and may
designate the titles of all officers. The initial officers of the Company shall
be: Xxxxxxx X. Xxxxxx, President; Xxxxxx Xxxxxxxx, Secretary and Chief
Financial Officer; Xxxxxx Xxxxxxx, Vice President; and Xxxxxxxx Xxxxxxxx, Vice
President. Unless otherwise provided in a resolution of the Members or Managers
the officers of the Company shall have the powers designated with respect to
such offices under the Texas Business Corporation Act, and any successor
statute, as amended from time-to-time.
ARTICLE XI.
INDEMNITY
---------
Section 11.1. Indemnification. The Company shall indemnify its Managers,
---------------
officers, employees, agents and others as fully as, and to the same extent, a
corporation may indemnify its directors, officers, employees and agents under
the Texas Business Corporation Act, now in effect or hereafter amended. The
Company shall have the power to purchase and maintain liability insurance
coverage for those persons as, and to the fullest extent, permitted by the Act,
as presently in effect and as may be hereafter amended.
8
Section 11.2. Indemnification Not Exclusive. The rights of
-----------------------------
indemnification and reimbursement provided for in Section 11.1 of this Article
XI. shall not be deemed exclusive of any other rights to which any such Manager,
officer, employee or agent may be entitled under the Articles of Organization,
any Regulations, agreement or vote of Members, or as a matter of law or
otherwise.
ARTICLE XII.
MISCELLANEOUS
-------------
Section 12.1. Fiscal Year. The fiscal year of the Company shall be fixed
-----------
by resolution of the Managers.
Section 12.2. Records. At the expense of the Company, the Managers shall
-------
maintain records and accounts of all operations of the Company. At a minimum,
the Company shall keep at its principal place of business the following records:
(a) A current list of the name and last known mailing address of each
Member;
(b) A current list of each Member's Membership Interest;
(c) A copy of the Articles of Organization and Regulations of the Company,
and all amendments thereto, together with executed copies of any powers of
attorney;
(d) Copies of the Federal, state, and local income tax returns and reports
for the Company's six most recent tax years; and
(e) Correct and complete books and records of account of the Company.
Section 12.3. Seal. The Company may by resolution of the Managers adopt
----
and have a seal, and said seal may be used by causing it or a facsimile thereof
to be impressed or affixed or in any manner reproduced. Any officer of the
Company shall have authority to affix the seal to any document requiring it.
Section 12.4. Agents. Every Manager and Officer is an agent of the
------
Company for the purpose of the business. The act of a Manager or Officer,
including the execution in the name of the Company of any instrument for
carrying on in the usual way the business of the Company, binds the Company.
Section 12.5. Checks. All checks, drafts and orders for the payment of
------
money, notes and other evidences of indebtedness issued in the name of the
Company shall be signed by such officer, officers, agent or agents of the
Company and in such manner as shall from time to time be determined by
resolution of the Managers. In the absence of such determination by the
Mangers, such instruments shall be signed by the Treasurer or the Secretary and
countersigned by the President or a Vice President of the Company, if the
Company has such officers.
9
Section 12.6. Deposits. All funds of the Company shall be deposited from
--------
time to time to the credit of the Company in such banks, trust companies or
other depositories as the Mangers may select.
Section 12.7. Annual Statement. The Managers shall present at each annual
----------------
meeting, and, when called for by vote of the Members, at any special meeting of
the Members, a full and clear statement of the business and condition of the
Company.
Section 12.8. Financial Statements. As soon as practicable after the end
--------------------
of each fiscal year of the Company, a balance sheet as at the end of such fiscal
year, and a profit and loss statement for the period ended, shall be distributed
to the Members, along with such tax information (including all information
returns) as may be necessary for the preparation of each Member of its Federal,
state and local income tax returns. The balance sheet and profit and loss
statement referred to in the previous sentence may be as shown on the Company's
federal income tax return. Any Member shall be entitled to receive, upon written
request and after the Company is provided with a reasonable period to comply,
any financial statements of the Company as of and for the period ended on any
month, calendar quarter or annual period; and the Members shall have access,
upon request and reasonable advance written notice, to all books, records and
accounts of the Company and all information and documents related thereto.
ARTICLE XIII.
AMENDMENTS
----------
Section 13.1. Amendments. These Regulations may be altered, amended or
----------
repealed and new Regulations may be adopted by the vote of a majority of the
Membership Interests of the Members, at any regular meeting or at any special
meeting called for that purpose.
Section 13.2. When Regulations Silent. It is expressly recognized that
-----------------------
when the Regulations are silent or in conflict with the requirements of the Act
as to the manner of performing any Company function, the provisions of the Act
shall control.
10
SIGNATURE PAGE TO
REGULATIONS
IN WITNESS WHEREOF, the undersigned Members hereby adopt these Regulations
as the Regulations of the Company, effective as of the 1st day of September,
1997.
PRIME KIDNEY STONE TREATMENT, INC.
By: /s/ Xxxxxxx X. Xxxxxx
---------------------------------------------
Xxxxxxx X. Xxxxxx, President
AK ASSOCIATES, INC.
By: /s/ Xxxxxx Xxxxxxx
---------------------------------------------
Printed Name: Xxxxxx Xxxxxxx
-----------------------------------
Title: Vice President
-----------------------------------------
11
EXHIBIT A
OWNERSHIP INTERESTS
-------------------
NAME OWNERSHIP PERCENTAGE
---- --------------------
Prime Kidney Stone Treatment, Inc. 75%
AK Associates, Inc. 25%
A-1
EXHIBIT-B
ASSIGNMENT AND ASSUMPTION AGREEMENT
This Assignment and Assumption Agreement (this "Assignment") is made and
entered into effective the 1st day of September, 1997 between and among AK
Associates, Inc., an Illinois corporation ("AK"), Prime Kidney Stone Treatment,
Inc., a New Jersey corporation ("Prime"), and AK Associates, L.L.C., a Texas
limited liability company ("Newco").
For good and valuable consideration, and pursuant to and in accordance with
the terms of that certain Contribution Agreement (the "Contribution Agreement")
made and entered into effective the 1st day of September, 1997, between and
among AK, Prime, Xxxxxx Xxxxxxx, Xxxxxxxx Xxxxxxxx, and Newco, the parties
hereto agree as follows:
1. AK hereby assigns, transfers and sets over to Newco all of AK's right,
title and interest in and to all of AK's undivided twenty-five percent (25%)
interest in the Assets (as defined in the Contribution Agreement), and Newco
hereby accepts such assignment and transfer.
2. Prime hereby assigns, transfers and sets over to Newco all of Prime's
right, title and interest in and to all of Prime's undivided seventy-five
percent (75%) interest in the Assets (as defined in the Contribution Agreement),
and Newco hereby accepts such assignment and transfer.
3. Newco hereby assumes, accepts and agrees to discharge and perform (i)
the obligations of AK specifically described on Exhibit-A hereto which accrue on
or after September 1, 1997, (ii) those certain trade payables on open account
incurred in the ordinary course of AK's business since September 1, 1997 from
unrelated parties, and (iii) obligations accruing after September 1, 1997 under
contracts for jobs in progress or not yet begun (which jobs Newco agrees to
complete according to the terms of such contracts). With respect to any lease
obligations reflected on Exhibit-A, and any contracts described in clause (iii)
of the preceding sentence, it is agreed that Newco will only be assuming
obligations thereunder which accrue on or after September 1, 1997, and Newco
will have no responsibility whatsoever for any breaches or defaults which
occurred prior to the Closing Date (as defined in the Contribution Agreement),
or for obligations accruing prior to September 1, 1997.
4. Except for those certain obligations specifically assumed by Newco
pursuant to paragraph 3 above, no party hereto is assuming any debts,
liabilities or obligations of any other party, person or entity whatsoever
pursuant to this Assignment, and any and all debts, liabilities and obligations
of AK, whether known or unknown, absolute, contingent or otherwise (including,
but not limited to, federal, state, and local taxes, any sales taxes, use taxes
and property taxes, any taxes arising from the transactions contemplated by the
Contribution Agreement and any liabilities arising from any litigation or civil,
criminal or regulatory proceeding involving or related to AK or its business)
shall remain the sole responsibility of AK.
5. This Assignment has been executed pursuant to, and in connection with,
the Contribution Agreement and the Closing (as defined therein) of the
transactions contemplated thereby and should be construed consistently
therewith. In the event of any conflict between the terms of this Assignment
and the Contribution Agreement, the terms of the Contribution Agreement shall
control.
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SIGNATURE PAGE TO
ASSIGNMENT AND ASSUMPTION AGREEMENT
IN WITNESS WHEREOF, the parties have caused this Assignment to be executed
by their duly authorized representatives effective September 1, 1997.
AK: AK ASSOCIATES, INC.
By: /s/ Xxxxxx Xxxxxxx
------------------------------
Printed Name: Xxxxxx Xxxxxxx
--------------------
Title: Vice President
----------------------
PRIME: PRIME KIDNEY STONE TREATMENT
INC.
By: /s/ Xxxxxxx X. Xxxxxx
------------------------------
Xxxxxxx X. Xxxxxx, President
NEWCO: AK ASSOCIATES, L.L.C.
By: /s/ Xxxxxxx X. Xxxxxx
------------------------------
Xxxxxxx X. Xxxxxx, President
and
By: /s/ Xxxxxx Xxxxxxx
------------------------------
Xxxxxx Xxxxxxx, Vice President
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ARTICLES OF ORGANIZATION
OF
AK ASSOCIATES, L.L.C.
The undersigned natural person of the age of eighteen years or more, acting
as the sole organizer of a limited liability company (the "Company") under the
Texas Limited Liability Company Act, does hereby adopt the following Articles of
Organization for such limited liability company:
ARTICLE I.
The name of the Company is AK Associates, L.L.C.
ARTICLE II.
The period of its duration is forty (40) years from the date of the filing
of these Articles of Organization with the Secretary of State of Texas.
ARTICLE III.
The purpose for which the Company is organized is to transact any and all
lawful business for which limited liability companies may be organized under the
Texas Limited Liability Company Act.
ARTICLE IV.
The street address of the Company's initial registered office is 0000
Xxxxxxx xx Xxxxx Xxxxxxx, Xxxxx X-000, Xxxxxx, Xxxxx 00000, and the name of its
initial registered agent at such address is Xxxxxxx X. Xxxxxx.
ARTICLE V.
The Company is to be managed by managers. The names and addresses of the
persons who are to serve as managers until the first annual meeting of the
members or until their successors are elected and qualified are:
Xxxxxxx X. Xxxxxx 0000 Xxxxxxx xx Xxxxx Xxx.
Xxxxx X-000
Xxxxxx, Xxxxx 00000
Xxxxxxx Xxxxxxxxxxxx 0000 Xxxxxxx xx Xxxxx Xxx.
Xxxxx X-000
Xxxxxx, Xxxxx 00000
Xxxxxx Xxxxxxxx 0000 Xxxxxxx xx Xxxxx Xxx.
Xxxxx X-000
Xxxxxx, Xxxxx 00000
Xxxxxx Xxxxxxx 00000 Xxxxx 00xx Xxxxxx
Xxxxxx, Xxxxxxxx 00000
Xxxxxxxx Xxxxxxxx 00000 Xxxxx 00xx Xxxxxx
Xxxxxx, Xxxxxxxx 00000
ARTICLE VI.
No manager shall be liable to the Company or its members for monetary
damages for an act or omission in the manager's capacity as a manager, except
that this Article does not eliminate or limit the liability of a manager to the
extent the manager is found liable for:
(1) a breach of the manager's duty of loyalty to the Company or its
members;
(2) an act or omission not in good faith that constitutes a breach of duty
of such manager to the Company
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(3) an act or omission not in good faith that constitutes a breach of duty
of the manager to the Company or an act or omission that involves intentional
misconduct or a knowing violation of the law;
(4) a transaction from which the manager received an improper benefit,
whether or not the benefit resulted from an action taken within the scope of the
manager's office; or
(5) an act or omission for which the liability of the manager is expressly
provided by an applicable statute.
Any repeal or modification of this Article by the members of the Company
shall be prospective only and shall not adversely affect any limitation on the
liability of a manager of the Company existing at the time of such repeal or
modification.
ARTICLE VII.
The name and address of the organizer are:
Name Address
---- --------
Xxx XxXxxx 000 Xxxxxxxx Xxxxxx
Xxxxx 0000
Xxxxxx, Xxxxx 00000
EXECUTED BY THE UNDERSIGNED ORGANIZER on this 3rd day of October, 1997.
/s/ Xxx XxXxxx
---------------------------------
Xxx XxXxxx
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