AGREEMENT AND PLAN OF MERGER
DATED AS OF JANUARY 29, 1999
AMONG
HEALTHCARE IMAGING SERVICES, INC.,
HIS PPM CO.,
JERSEY INTEGRATED HEALTHPRACTICE, INC.,
PAVONIA MEDICAL ASSOCIATES, P.A.
AND
THE PHYSICIAN STOCKHOLDERS OF PAVONIA MEDICAL ASSOCIATES, P.A.
TABLE OF CONTENTS
ARTICLE I.
DEFINITIONS............................................................1
Section 1.01 Definitions...............................................1
Section 1.02 Rules of Construction....................................10
ARTICLE II.
THE MERGER AND THE SURVIVING CORPORATION..............................11
Section 2.01 Effective Time of the Merger.............................11
Section 2.02 Surviving Corporation....................................12
Section 2.03 Exchange of Consideration................................12
Section 2.04 Status of Company Shares After Effective Date............12
Section 2.05 Name.....................................................12
Section 2.06 Certificate of Incorporation.............................12
Section 2.07 Bylaws...................................................13
Section 2.08 Directors and Officers...................................13
Section 2.09 Risk of Loss.............................................13
Section 2.10 Closing Date Financial Statements........................13
ARTICLE III.
THE CLOSING...........................................................13
Section 3.01 Closing Date.............................................13
Section 3.02 Deliveries at Closing....................................13
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
OF THE SELLER AND THE COMPANY.........................................15
Section 4.01 Organization and Qualification...........................16
Section 4.02 Authority................................................16
Section 4.03 Consents and Approvals; No Violations....................16
Section 4.04 Capitalization...........................................16
Section 4.05 Subsidiaries.............................................17
Section 4.06 Articles of Incorporation and By-laws....................17
Section 4.07 Compliance With Laws; Licenses...........................17
Section 4.08 Litigation; Investigations...............................18
Section 4.09 Taxes....................................................18
Section 4.10 Employee Benefit Plans; ERISA............................20
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Section 4.11 Labor Relations..........................................22
Section 4.12 Insurance Policies.......................................23
Section 4.13 Financial Statements and Books and Records...............23
Section 4.14 No Material Adverse Change...............................24
Section 4.15 Absence of Liabilities...................................24
Section 4.16 Absence of Specified Changes.............................24
Section 4.17 Corporate Names..........................................26
Section 4.18 Real Property; Leases....................................26
Section 4.19 Equipment and Personal Property..........................27
Section 4.20 Intellectual Property....................................27
Section 4.21 Software.................................................28
Section 4.22 Contracts................................................28
Section 4.23 Inventory................................................29
Section 4.24 Directors, Officers and Employees........................29
Section 4.25 Title to Properties; Liens...............................29
Section 4.26 Condition of Assets......................................29
Section 4.27 Transactions with Affiliates.............................29
Section 4.28 Valid Transfer...........................................29
Section 4.29 Absence of Certain Practices.............................29
Section 4.30 Accounts Payable.........................................30
Section 4.31 Accounts Receivable......................................30
Section 4.32 Identification of Depositories and Authority.............30
Section 4.33 WARN Act.................................................30
Section 4.34 Records..................................................30
Section 4.35 Medicine.................................................30
Section 4.36 Fraud and Abuse..........................................31
Section 4.37 Third-Party Payors.......................................31
Section 4.38 Compliance with Medicare and Medicaid Programs...........31
Section 4.39 Rate Limitations and Rates...............................32
Section 4.40 Participation in Audits..................................32
Section 4.41 Reimbursement Documentation..............................32
Section 4.42 DVI Term Loan............................................32
Section 4.43 Environmental Laws.......................................32
Section 4.44 Patients.................................................32
Section 4.45 Medical Waste............................................33
Section 4.46 Patient Referrals........................................33
Section 4.47 Physician Self-Referral..................................33
Section 4.48 Disclosure...............................................33
Section 4.49 Investment Intent of the Seller..........................33
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF
THE PURCHASER AND THE MERGER SUB......................................34
Section 5.01 Organization and Qualification...........................34
Section 5.02 Authority................................................34
Section 5.03 Consents and Approvals; No Violations....................35
Section 5.04 Capitalization...........................................36
Section 5.05 Commission Filings.......................................36
Section 5.06 No Material Adverse Change...............................36
Section 5.07 Absence of Liabilities...................................36
Section 5.08 Litigation...............................................37
Section 5.09 Taxes....................................................37
ARTICLE VI.
CERTAIN COVENANTS.....................................................37
Section 6.01 Access to Information....................................37
Section 6.02 Conduct of Business in Normal Course.....................37
Section 6.03 Consent..................................................40
Section 6.04 Further Assurances.......................................40
Section 6.05 No Solicitation..........................................40
Section 6.06 Notification of Certain Matters..........................40
Section 6.07 Supplements to Schedules.................................40
Section 6.08 Confidentiality..........................................41
Section 6.09 Independent Appraisal....................................42
Section 6.10 Fees and Expenses........................................42
Section 6.11 DVI Term Loan............................................43
Section 6.12 Proxy Statement..........................................43
ARTICLE VII.
CONDITIONS TO EACH PARTY'S OBLIGATIONS................................44
Section 7.01 Governmental Authorizations; Consents....................44
Section 7.02 Absence of Litigation....................................44
Section 7.03 No Injunction............................................44
ARTICLE VIII.
CONDITIONS PRECEDENT TO THE PURCHASER'S
AND THE MERGER SUB'S OBLIGATION.......................................44
Section 8.01 Accuracy of Representations and Warranties...............45
Section 8.02 Performance by the Seller, the Company and the
Physician Stockholders................................................45
Section 8.03 Investigations...........................................45
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Section 8.04 Casualty Losses; Material Change.........................45
Section 8.05 Stock....................................................45
Section 8.06 Board of Directors.......................................45
Section 8.07 Investment Representations...............................45
Section 8.08 CLIA.....................................................45
Section 8.09 Employment Agreements....................................46
Section 8.10 Leases...................................................46
Section 8.11 Agreements with Stockholders of the Seller...............46
Section 8.12 Liberty HealthCare System, Inc...........................46
Section 8.13 Financing................................................46
Section 8.14 Audited Financial Statements.............................46
Section 8.15 Unaudited Financial Statements...........................46
Section 8.16 FIRPTA Certificate.......................................47
Section 8.17 Consents.................................................47
Section 8.18 Administrative Services Agreement........................47
[Section 8.19 IPA Agreement............................................47
Section 8.20 Compliance with Laws.....................................47
Section 8.21 Opinions of Counsel......................................47
Section 8.22 Voting Agreement.........................................47
ARTICLE IX.
CONDITIONS PRECEDENT TO THE SELLER'S OBLIGATIONS......................47
Section 9.01 Accuracy of Representations and Warranties...............47
Section 9.02 Performance by Purchaser.................................47
Section 9.03 Board Representation.....................................48
Section 9.04 Liberty HealthCare System, Inc...........................48
Section 9.05 Consents.................................................48
Section 9.06 Compliance with Laws.....................................48
ARTICLE X.
SURVIVAL OF REPRESENTATIONS, WARRANTIES,
COVENANTS AND AGREEMENTS...................................48
ARTICLE XI.
INDEMNIFICATION.......................................................49
Section 11.01 General Indemnity.......................................49
Section 11.02 Indemnification Procedure...............................50
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ARTICLE XII.
TERMINATION...........................................................52
Section 12.01 Right to Terminate......................................52
Section 12.02 Obligations to Cease....................................52
ARTICLE XIII.
OBLIGATIONS AFTER THE CLOSING.........................................53
Section 13.01 Tax Returns.............................................53
Section 13.02 Employees and Employee Benefits.........................53
Section 13.03 Tax Audits..............................................54
Section 13.04 Certain Contracts.......................................54
Section 13.05 Further Assurances......................................54
Section 13.06 Board Representation....................................54
Section 13.07 Seller's Indebtedness to the Company....................54
Section 13.08 Line of Credit..........................................55
ARTICLE XIV.
MISCELLANEOUS.........................................................55
Section 14.01 Publicity...............................................55
Section 14.02 Costs...................................................56
Section 14.03 Headings................................................56
Section 14.04 Notices.................................................56
Section 14.05 Assignment and Successors...............................58
Section 14.06 Binding Effect..........................................58
Section 14.07 Governing Law; Forum; Process...........................58
Section 14.08 Entire Agreement........................................58
Section 14.09 Counterparts............................................59
Section 14.10 Severability............................................59
Section 14.11 No Prejudice............................................59
Section 14.12 Words in Singular and Plural Form.......................59
Section 14.13 Parties in Interest.....................................59
Section 14.14 Amendment and Modification..............................59
Section 14.15 Waiver..................................................59
Section 14.16 Knowledge...............................................59
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SCHEDULES
Schedule 4.03 Consents
Schedule 4.04 Capitalization
Schedule 4.05 Subsidiaries
Schedule 4.07 Permits
Schedule 4.08 Litigation
Schedule 4.09 Taxes
Schedule 4.10 Employee Benefit Plans
Schedule 4.12 Insurance Policies
Schedule 4.14 Material Adverse Changes
Schedule 4.15 Liabilities
Schedule 4.16 Specified Changes
Schedule 4.17 Corporate Names
Schedule 4.18 Real Property/Leases
Schedule 4.19 Equipment and Personal Property
Schedule 4.20 Intellectual Property
Schedule 4.21 Software
Schedule 4.22 Contracts
Schedule 4.23 Inventory
Schedule 4.24 Directors, Officers and Employees
Schedule 4.25 Liens
Schedule 4.27 Transactions with Affiliates
Schedule 4.32 Depositories
Schedule 4.37 Third Party Payor Contracts
Schedule 4.39 Standard, Medicare and Medicaid Rates
Schedule 4.44 Adverse Relationships with Patients
Schedule 5.06 Purchaser/No Material Adverse Change
Schedule 5.07 Purchaser/Absence of Liabilities
Schedule 5.0 Purchaser/Litigation
Schedule 5.09 Purchaser/Taxes
Schedule 13. Certain Contracts
Schedule 13.07(a) Seller's Operational Costs
Schedule 13.07(b) Physician Employee Compensation
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EXHIBITS
Exhibit 1 Form of Administrative Services Agreement
Exhibit 2 Form of Delaware Certificate of Merger
[Exhibit Form of IPA Agreement]
Exhibit 4 Form of Line of Credit Security Agreement
Exhibit 5 Form of Loan Agreement
Exhibit 6 Form of New Jersey Certificate of Merger
Exhibit 7 Form of Promissory Note
Exhibit 8 Form of Security Agreement
Exhibit 9 Form of Voting Agreement
Exhibit 1 Form of Certificate of Designations for Series E Preferred Stock
Exhibit 1 Opinion of Counsel to the Seller
Exhibit 1 Form of FIRPTA Certificate
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of January 29, 1999 (this
"Agreement"), by and among HealthCare Imaging Services, Inc., a Delaware
corporation (the "Purchaser"), HIS PPM Co., a Delaware corporation (the "Merger
Sub"), Jersey Integrated HealthPractice, Inc., a New Jersey corporation (the
"Company"), Pavonia Medical Associates, P.A., a New Jersey professional
corporation (the "Seller"), and the physician stockholders of the Seller, all of
whom are listed on the signature pages hereto (the "Physician Stockholders").
WHEREAS, the Board of Directors of the Purchaser and the Board of
Directors and the stockholders of the Company have each determined that a
business combination between the Purchaser and the Company is in the best
interests of their respective companies and stockholders, and accordingly have
agreed to effect the Merger provided for herein upon the terms and subject to
the conditions set forth herein;
WHEREAS, for federal income tax purposes, it is intended that the Merger
contemplated herein shall qualify as a reorganization within the meaning of
Section 368(a) of the Code, and that this Agreement together with that certain
Agreement and Plan of Merger by and among the Purchaser, the Merger Sub, Liberty
and the Company constitute a plan of reorganization, within the meaning of
Treasury Regulation Section 1.368-2(g) promulgated under the Code; and
WHEREAS, the Company, the Seller, the Physician Stockholders, the
Purchaser and the Merger Sub desire to make certain representations, warranties
and agreements in connection with the Merger.
NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties, covenants and agreements contained herein, intending to be legally
bound hereby, the parties hereto agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.01 Definitions. As used throughout this Agreement, the following
terms have the following meanings:
"Accountants" means Coopers & Xxxxxxx, LLP.
"Administrative Services Agreement" means the Administrative
Services Agreement entered into between the Company and the Seller,
substantially in the form of Exhibit 1 hereto, dated on or prior to the date
hereof and effective as of the Closing Date, as amended,
1
modified or supplemented from time to time in accordance with the terms thereof,
together with any exhibits, schedules or other attachments thereto.
"Affiliate" means a Person that directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, a specified Person. The term "control" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through ownership of Capital Stock,
by contract or otherwise.
"Affiliated Group" has the meaning ascribed thereto in Section
11.01(a).
"Agreement" means this Agreement, as amended, modified or
supplemented from time to time in accordance with the terms hereof, together
with any exhibits, schedules or other attachments thereto.
"Capital Stock" means, with respect to any Person, any and all
shares, interests, participations, rights in or other equivalents (however
designated and whether voting or non-voting) of such Person's capital stock or
any form of membership interests, as applicable, whether outstanding on the
Closing Date or issued after the Closing Date and any and all rights, warrants
or options exercisable or exchangeable for or convertible into such capital
stock.
"CERCLA" means the Comprehensive Environmental Response Compensation
and Liability Act of 1980.
"CLIA" means the Clinical Laboratories Improvement Act.
"Closing" has the meaning ascribed thereto in Section 3.01.
"Closing Date" has the meaning ascribed thereto in Section 3.01.
"COBRA" means the Consolidated Omnibus Budget Reconciliation Act of
1985.
"Code" means the Internal Revenue Code of 1986 (or any successor
statute thereto), as amended from time to time.
"Commission" means the Securities and Exchange Commission.
"Commission Filings" has the meaning ascribed thereto in Section
5.05.
"Common Stock" has the meaning ascribed thereto in Section 2.03.
"Common Stock Consideration" has the meaning ascribed thereto in
Section 2.03.
2
"Company" means Jersey Integrated HealthPractice, Inc. or any
predecessor.
"Company's Financial Statements" means the 1998 Company Financial
Statements, the 1997 Company Financial Statements, the 1996 Company Financial
Statements and the Interim 1998 Company Financial Statements.
"1998 Company Financial Statements" means the audited financial
statements of the Company for the fiscal year ended September 30, 1998,
including the balance sheet as at September 30, 1998 and the related statements
of operations, stockholders' equity and changes in financial position for the
year ended September 30, 1998, prepared on an accrual basis in accordance with
GAAP, together with the audit opinion of the Accountants thereon.
"1997 Company Financial Statements" means the audited financial
statements of the Company for the fiscal year ended September 30, 1997,
including the balance sheet as at September 30, 1997 and the related statements
of operations, stockholders' equity and changes in financial position for the
year ended September 30, 1997, prepared on an accrual basis in accordance with
GAAP, together with the audit opinion of the Accountants thereon.
"1996 Company Financial Statements" means the audited financial
statements of the Company for the fiscal year ended September 30, 1996,
including the balance sheet as at September 30, 1996 and the related statements
of operations, stockholders' equity and changes in financial position for the
year ended September 30, 1996, prepared on an accrual basis in accordance with
GAAP, together with the audit opinion of the Accountants thereon.
"Confidential Information" means all non-public information and
records, including the existence and terms of this Agreement, whether written or
oral, concerning the business of any other party hereto; provided, however, that
the term Confidential Information shall not include information or data which
(i) at the time of disclosure is generally available to and known by the public
other than as a result of disclosure in violation of clause (a) or (b) of
Section 6.08, (ii) was or becomes available to a party on a non-confidential
basis from a source other than the other party or its agents or advisors;
provided, however, that such source is not bound by a confidentiality agreement
or obligation of secrecy in respect thereof or (iii) may be disclosed by the
Purchaser pursuant to Section 14.01 hereof.
"Consents" means governmental and third party consents, permits,
approvals, orders, authorizations, qualifications, and waivers necessary for the
consummation of the transactions contemplated hereby or that thereafter may be
necessary to effectuate the transfer or renewal of any other license, approval
or authorization.
"Contracts" has the meaning ascribed thereto in Section 4.22.
"Conversion Shares" has the meaning ascribed thereto in Section
5.02.
3
"Delaware Certificate" means the certificate of merger substantially
in the Form of Exhibit 2 hereto, together with any exhibits, schedules or other
attachments thereto.
"DGCL" means the Delaware General Corporation Law.
"Disclosing Party" has the meaning ascribed thereto in Section
6.08(b).
"Xx. Xxxxx" means Xx. Xxxxxxxx X. Xxxxx.
"Xx. Xxxxxxx" means Xx. Xxx Xxxxxxx.
"DVI Term Loan" means the $1.0 million term loan funded to the
Company by DVI Financial Services, Inc. on January 8, 1998.
"Effective Time" has the meaning ascribed thereto in Section 2.01.
"Environmental Laws" means any applicable federal, state, local or
foreign laws, statutes, rules, regulations, orders, consent decrees, judgments,
permits or licenses, relating to prevention, remediation, reduction or control
of pollution, or protection of the environment, natural resources and/or human
health and safety, including, without limitation, such applicable Laws or
Licenses relating to (a) solid waste and/or Hazardous Materials generation,
handling, transportation, use, treatment, storage or disposal, (b) air, water,
and noise pollution, (c) soil, ground, water or groundwater contamination, (d)
the manufacture, generation, processing, handling, distribution, use, treatment,
storage, transportation or release, emission or discharge into the environment
of Hazardous Materials, (e) regulation of underground and above ground storage
tanks, (f) the obtaining, sale, use, storage, disposal or testing of any human
blood or blood product and (g) the disposal of medical waste.
"ERISA" means the Employee Retirement Income Security Act of 1974,
and the rules and regulations thereunder, as amended from time to time.
"Excess Cash Flow" has the meaning ascribed thereto in Section
13.07.
"FDA" means the Food and Drug Administration.
"FIRPTA Certificate" has the meaning ascribed thereto in Section
8.16.
"GAAP" means generally accepted accounting principles and practices
set forth in the opinions and pronouncements of the Accounting Principles Board
and the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession that are applicable to the circumstances as of the
date of determination.
4
"Governmental Authority" means any governmental or
quasi-governmental authority including, without limitation, any federal, state,
territorial, county, municipal or other governmental or quasi-governmental
agency, board, branch, bureau, commission, court, arbitration panel, department,
authority, body or other instrumentality or political unit or subdivision or
official thereof, whether federal, state, local, domestic or foreign.
"Hazardous Materials" means and includes any pollutants, hazardous
or toxic materials, substances or wastes, including: petroleum and petroleum
products and derivatives; asbestos; radon; polychlorinated bi-phenyls;
urea-formaldehyde foam insulation; explosives; radioactive materials; laboratory
wastes and medical wastes (including contaminated clothing, body fluids,
contaminated medical instruments and equipment, catheters, used bandages,
gauzes, needles or other sharp instruments); and any chemicals, materials or
substances designated or regulated as hazardous or as toxic substances,
materials, or wastes, or otherwise regulated, under any Environmental Law;
hazardous waste, hazardous material, hazardous substance, petroleum product,
oil, toxic substance, pollutant, contaminant, or other human health or safety,
as defined or regulated under any Environmental Law.
"HCFA" means the Health Care Financing Administration.
"Indemnitee" has the meaning ascribed thereto in Section 11.01(a).
"Indemnitor" has the meaning ascribed thereto in Section 11.01(a).
"Intangible Property" has the meaning ascribed thereto in Section
4.20.
"Interim 1998 Company Financial Statements" means the unaudited
financial statements of the Company for the nine month period ended September
30, 1998, including the balance sheet as at September 30, 1998, and the related
statements of operations, stockholder's equity and changes in financial position
for the nine months ended September 30, 1998, prepared on an accrual basis in
accordance with GAAP.
"Interim 1998 Seller Financial Statements" means the unaudited
financial statements of the Seller for the nine month period ended September 30,
1998, including the balance sheet as at September 30, 1998, and the related
statements of operations, stockholder's equity and changes in financial position
for the nine months ended September 30, 1998, prepared on an accrual basis in
accordance with GAAP.
"IPA" means the Independent Practice Association established by the
Purchaser.
"IPA Agreement" means the Independent Practice Association Agreement
entered into between the Seller and the IPA, substantially in the form of
Exhibit 3 hereto, dated on or prior to the date hereof and effective as of the
Closing Date, as amended, modified or
5
supplemented from time to time in accordance with the terms thereof, together
with any exhibits, schedules or other attachments thereto.
"IRS" means the Internal Revenue Service or any successor agency.
"Law" means any statute, ordinance, code, rule, regulation or order
enacted, adopted, promulgated, applied or followed by any Governmental
Authority.
"Leased Premises" means any real property which either the Company
or the Seller leases or subleases.
"Liberty" means Liberty HealthCare System, Inc.
"Licenses" means all licenses, permits, consents, authorizations,
registrations and approvals of, with or from Governmental Authorities and
industry trade associations, including all occupancy, fire, business and other
permits from local officials, required for the conduct of the business of the
Company or the Seller as now being conducted.
"Lien" means any security agreement, financing statement (whether or
not filed), mortgage, lien (statutory or otherwise), charge, pledge,
hypothecation, conditional sales agreement, adverse claim, title retention
agreement or other security interest, encumbrance, lien, charge, restrictive
agreement, mortgage, deed of trust, indenture, pledge, option, limitation,
exception to or other title defect in or on any interest or title of any vendor,
lessor, lender or other secured party to or of such Person under any conditional
sale, lease, consignment, or bailment given for security purposes, trust receipt
or other title retention agreement with respect to any Property or asset of such
Person, whether direct, indirect, accrued or contingent.
"Line of Credit" has the meaning ascribed thereto in Section 13.08.
"Line of Credit Security Agreement" means the Security Agreement
entered into between the Purchaser and the Seller, substantially in the form of
Exhibit 4 hereto, as amended, modified or supplemented from time to time in
accordance with the terms thereof, together with any exhibits, schedules or
other attachments thereto.
"Loan Agreement" means the Loan Agreement entered into between the
Purchaser and the Seller, substantially in the Form of Exhibit 5 hereto, dated
on or prior to the date hereof and effective as of the Closing Date, as amended,
modified or supplemented from time to time in accordance with the terms thereof,
together with any exhibits, schedules or other attachments thereto.
"Losses" means any and all losses, claims, damages, liabilities (or
actions, suits or proceedings, including any inquiry or investigation with
respect thereto), costs (including the
6
reasonable costs of preparation and attorneys' fees) and expenses (including
reasonable expenses of investigation).
"Material Adverse Effect" means any event, circumstance or condition
that, individually or when aggregated with all other similar events,
circumstances or conditions could reasonably be expected to have, or has had, a
material adverse effect on: (i) the business, property, operations, condition
(financial or otherwise), results of operations or prospects of the Company or
the Seller, (ii) the Capital Stock of the Company or the Seller, including,
without limitation, the Stock; (iii) the ability of the Company or the Seller to
consummate the transactions contemplated hereunder; or (iv) the ability of the
Purchaser to perform and conduct the operations of the Company after the
consummation of the transactions contemplated by this Agreement in the manner
conducted prior to the consummation of such transactions.
"Medical Waste" means (i) pathological waste, (ii) blood, (iii)
sharps, (iv) wastes from surgery or autopsy, (v) dialysis waste, including
contaminated disposable equipment and supplies, (vi) cultures and stocks of
infectious agents and associated biological agents, (vii) contaminated animals,
(viii) isolation wastes, (ix) contaminated equipment, (x) laboratory waste, (xi)
any substance, pollutant, material, or contaminant listed or regulated under any
Medical Waste Law, and (xii) other biological waste and discarded materials
contaminated with or exposed to blood, excretion, or secretions from human
beings or animals.
"Medical Waste Laws" means the following, including regulations
promulgated and orders issued thereunder, as in effect on the date hereof and
the Closing Date: (i) the Medical Waste Tracking Act of 1988, 42 USCA
ss.ss.6992, et seq., (ii) the U.S. Public Vessel Medical Waste Anti-Dumping Act
of 1988, 33 USCA ss.ss.2501 et seq., (iii) the Marine Protection, Research, and
Sanctuaries Act of 1972, 33 USCA ss.ss.1401 et seq., (iv) the Occupational
Safety and Health Act, 29 USCA ss.ss.651 et seq., (v) the United States
Department of Health and Human Services, National Institute for Occupational
Safety and Health, Infectious Waste Disposal Guidelines, Publication No. 88-119,
and (vi) and any Laws insofar as they are applicable to either the Company's or
the Seller's assets or operations and purport to regulate Medical Waste or
impose requirements relating to Medical Waste.
"Merger" has the meaning ascribed thereto in the preamble to Article
II.
"Merger Consideration" has the meaning ascribed thereto in Section
2.03.
"Merger Sub" means HIS PPM Co.
"New Jersey Certificate" means the certificate of merger
substantially in the form of Exhibit 6 hereto, together with any exhibits,
schedules or other attachments thereto.
"NJCBA" means the New Jersey Business Corporation Act.
7
"Notice" has the meaning ascribed thereto in Section 11.02(a).
"Patients" means all patients who are currently or have been
patients of the Seller since the Seller's (or any predecessor's) inception.
"Patient Files" means all materials or information relating to the
Patients.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permits" has the meaning ascribed thereto in Section 4.07(b).
"Person" means any individual, entity or group, including, without
limitation, individual, corporation, limited liability company, limited or
general partnership, joint venture, association, joint stock company, trust,
unincorporated organization, or government or any agency or political
subdivision thereof.
"Physician Employees" means any physicians who have performed or
currently are performing services for or on behalf of the Seller.
"Physician Self-Referral Law" has the meaning ascribed thereto in
Section 4.47.
"Physician Stockholders" means the physician stockholders of the
Seller, all of whom are listed on the signature pages hereto.
"Plans" means all employee benefit plans, all employee welfare
benefit plans, all employee pension benefit plans, all multi-employer plans and
all multi-employer welfare arrangements (as defined in Sections 3(3), (1), (2),
(37) and (40), respectively, of ERISA), (including, without limitation, benefit
plans or arrangements that are not subject to ERISA, such as employment
agreements and any other agreements containing "golden parachute" provisions and
deferred compensation agreements), together with copies of any trusts related
thereto and a classification of employees covered thereby.
"Pre-Acquisition Liability" has the meaning ascribed thereto in
Section 6.11.
"Preferred Stock" has the meaning ascribed thereto in Section 2.03.
"Promissory Note" means the Promissory Note payable by the Seller to
the Purchaser, substantially in the form of Exhibit 7 hereto, as amended,
modified or supplemented from time to time in accordance with the terms thereof,
together with any exhibits, schedules or other statements thereto.
"Property" means any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
8
"Proxy Statement" means the proxy statement of the Purchaser for the
Special Meeting.
"Purchaser" means HealthCare Imaging Services, Inc.
"Purchaser Financial Statements" has the meaning ascribed thereto in
Section 5.05.
"Purchaser Preferred Stock" has the meaning ascribed thereto in
Section 5.04.
"Qualified Plans" has the meaning ascribed thereto in Section
4.10(b).
"Recoupment Claim" means any recoupment or overpayment, set-off,
penalty or fine pending, or to the knowledge of the Company or the Seller
threatened, by any third-party payor or Governmental Authority having
jurisdiction over either the Company or the Seller for amounts arising from or
related to payments to either the Company or the Seller for services rendered by
the Seller prior to the Closing.
"Representative" has the meaning ascribed thereto in Section
6.08(b).
"Securities Act" means the Securities Act of 1933, and the rules and
regulations of the Commission promulgated thereunder, as amended.
"Security Agreement" means the Security Agreement entered into
between the Purchaser and the Seller, substantially in the form of Exhibit 8
hereto, as amended, modified or supplemented from time to time in accordance
with the terms thereof, together with any exhibits, schedules or other
statements thereto.
"Seller" means Pavonia Medical Associates, P.A. or any predecessor.
"Seller's Financial Statements" means the 1998 Seller Financial
Statements, the 1997 Seller Financial Statements, the 1996 Seller Financial
Statements and the Interim 1998 Seller Financial Statements.
"1998 Seller Financial Statements" means the audited financial
statements of the Seller for the fiscal year ended September 30, 1998, including
the balance sheet as at September 30, 1998 and the related statements of
operations, stockholders' equity and changes in financial position for the year
ended September 30, 1998, prepared on an accrual basis in accordance with GAAP,
together with the audit opinion of the Accountants thereon.
"1997 Seller Financial Statements" means the audited financial
statements of the Seller for the fiscal year ended September 30, 1997, including
the balance sheet as at September 30, 1997 and the related statements of
operations, stockholders' equity and changes in financial
9
position for the year ended September 30, 1997, prepared on an accrual basis in
accordance with GAAP, together with the audit opinion of the Accountants
thereon.
"1996 Seller Financial Statements" means the audited financial
statements of the Seller for the fiscal year ended September 30, 1996, including
the balance sheet as at September 30, 1996 and the related statements of
operations, stockholder's equity and changes in financial position for the year
ended September 30, 1996, prepared on an accrual basis in accordance with GAAP,
together with the audit opinion of the Accountants thereon.
"Seller's Payable" has the meaning ascribed thereto in Section
13.07.
"Selling Group" has the meaning ascribed thereto in Section 6.08.
"Special Meeting" means the special meeting of the stockholders of
the Purchaser held for the purpose, among other things, of considering and
approving this Agreement and the transactions contemplated hereby.
"Stock" has the meaning ascribed thereto in Section 2.03.
"Subject Party" has the meaning ascribed thereto in 6.08(b).
"Surviving Corporation" has the meaning ascribed thereto in the
preamble to Article II.
"Tax" and "Taxes" means any and all taxes, charges, fees, levies or
other assessments, including, without limitation, all net income, gross income,
gross receipts, premium, sales, use, ad valorem, value added, transfer,
franchise, profits, license, withholding, payroll, employment, excise,
estimated, severance, stamp, occupation, property or other taxes, fees,
assessments or charges of any kind whatsoever, together with any interest and
any penalties (including penalties for failure to file in accordance with
applicable information reporting requirements), and additions to tax by any
authority, whether federal, state, local, domestic or foreign.
"Tax Action" has the meaning ascribed thereto in Section 13.03.
"Taxpayers" has the meaning ascribed thereto in Section 4.09(a).
"Tax Return" means any report, return, form, declaration or other
document or information required to be supplied to any Governmental Authority in
connection with Taxes.
"Term" has the meaning ascribed thereto in Section 13.08.
10
"Transaction Documents" means, collectively, this Agreement and any
and all agreements, exhibits, schedules, certificates, instruments and other
documents contemplated hereby or executed and delivered in connection herewith.
"Voting Agreement" means the Voting Agreement, entered into among
the Purchaser, the Seller and the Physician Stockholders, substantially in the
form of Exhibit 9 hereto, dated on or prior to the date hereof and effective as
of the Closing Date, as amended, modified or supplemented from time to time in
accordance with the terms thereof, together with any exhibits, schedules or
other attachments thereto.
Section 1.02 Rules of Construction.
Unless the context otherwise requires:
(a) a term has the meaning assigned to it;
(b) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(c) "or" is not exclusive;
(d) words in the singular include the plural, and words in
the plural include the singular;
(e) provisions apply to successive events and transactions;
(f) the words "include" and "including" shall be deemed to
mean "include, without limitation," and "including, without limitation";
(g) "herein," "hereof," "hereto," "hereunder" and other
words of similar import refer to this Agreement as a whole and not to any
particular article, section, paragraph or clause where such terms may
appear;
(h) references to sections or articles shall mean references
to such section or article in this Agreement, unless stated otherwise; and
(i) the use of any gender shall be applicable to all
genders.
11
ARTICLE II.
THE MERGER AND THE SURVIVING CORPORATION
At the Effective Time, the Company shall merge with and into the Merger
Sub (the "Merger"), and the Merger Sub shall survive the Merger as the
"Surviving Corporation."
Section 2.01 Effective Time of the Merger. As soon as practicable after
the satisfaction or, to the extent permitted hereunder, waiver of all of the
conditions contained in this Agreement: (i) the Delaware Certificate shall be
duly prepared, executed and acknowledged by the Merger Sub and thereafter
delivered to the Secretary of State of the State of Delaware for filing as
provided in the DGCL simultaneously with the Closing; and (ii) the New Jersey
Certificate shall be duly prepared and shall be executed by each of the Merger
Sub and the Company and thereafter delivered for filing as provided in the NJBCA
simultaneously with the Closing. The Merger shall become effective upon the
later of the filing of the New Jersey Certificate with the Secretary of State of
the State of New Jersey or the filing of the Delaware Certificate with the
Secretary of State of the State of Delaware (the "Effective Time").
Section 2.02 Surviving Corporation. Following the Merger, the existence of
the Surviving Corporation shall continue unaffected and unimpaired by the
Merger, with all the rights, privileges, immunities and powers, and subject to
all the duties and liabilities, of a corporation organized under the laws of the
State of Delaware.
Section 2.03 Exchange of Consideration.
The Seller shall deliver to the Purchaser at the Closing
certificates representing all shares of common stock (the "Stock"), $0.01 par
value per share, of the Company owned by the Seller, which shares constitute
approximately 70.6% of the issued and outstanding common stock of the Company on
a fully diluted basis, and, in exchange therefor, the Purchaser shall deliver to
the Seller the following (the "Merger Consideration"):
(a) cash in the amount of $5.0 million (the "Cash
Consideration");
(b) stock certificates, containing appropriate restrictive
legends, representing 1,000 shares of Series E
redeemable convertible preferred stock of the Purchaser
(the "Preferred Stock"), with an aggregate liquidation
preference of $5.0 million; the form of the Certificate
of Designations for the Preferred Stock is attached
hereto as Exhibit 10; and
(c) stock certificates, containing appropriate restrictive
legends, representing 5.0 million shares of common
stock, $0.01 par value per share (the "Common Stock"),
of the Purchaser (the "Common Stock Consideration").
12
The Common Stock Consideration shall be subject to the terms of the pledge
set forth in the Administrative Services Agreement.
Section 2.04 Status of Company Shares After Effective Date. On the
Effective Date, all outstanding certificates representing shares of Capital
Stock of the Company shall be cancelled and retired.
Section 2.05 Name. The corporate name of the Surviving Corporation shall
be the name of the Company.
Section 2.06 Certificate of Incorporation. The Certificate of
Incorporation of the Merger Sub in effect immediately prior to the Effective
Time shall be the Certificate of Incorporation of the Surviving Corporation
until amended in accordance with applicable Law.
Section 2.07 Bylaws. The Bylaws of the Merger Sub in effect immediately
prior to the Effective Time shall be the Bylaws of the Surviving Corporation
until amended in accordance with applicable law.
Section 2.08 Directors and Officers. The members of the Board of Directors
and the officers of the Merger Sub in office on the Effective Date shall remain
the directors and officers of the Surviving Corporation.
Section 2.09 Risk of Loss. Risk of loss to the assets of the Company,
however caused (other than by Merger Sub or those duly authorized to act on
behalf of Merger Sub), from the date hereof through the Closing Date, shall
remain wholly upon the Company and the Seller. Such risk shall transfer to the
Surviving Corporation at the beginning of the day (12:00:01 a.m.)
immediately following the Closing Date.
Section 2.10 Closing Date Financial Statements. As promptly as practicable
after the Closing Date (but in no event later than thirty (30) days after the
Closing Date), the Seller shall prepare, in accordance with GAAP, (i) a
statement of operations of the Company for the period from October 1, 1998
through the Closing Date and (ii) the balance sheet of the Company as of the
Closing Date which shall fairly present the financial position of the Company as
of the Closing Date. If the Seller does not deliver such financial statements to
the Purchaser within thirty (30) days of the Closing Date, Deloitte & Touche LLP
shall prepare, at the sole cost of the Seller, the financial statements referred
to in the prior sentence.
13
ARTICLE III.
THE CLOSING
Section 3.01 Closing Date. Upon the terms and subject to the satisfaction
or, to the extent permitted hereunder, waiver of all of the conditions contained
in this Agreement, at the Effective Time, the closing of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Xxxxxxx Berlin Shereff Xxxxxxxx, LLP, 000 Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx
00000, such date and time of the Closing is also referred to herein as the
"Closing Date."
Section 3.02 Deliveries at Closing.
(a) At the Closing, the Purchaser shall deliver to the Seller:
(i) the Cash Consideration;
(ii) certificates representing the Preferred Stock;
(iii) certificates representing the Common Stock
Consideration;
(iv) a certificate of an authorized officer of the Purchaser
certifying to the fulfillment of the conditions set
forth in Sections 9.01 and 9.02;
(v) a copy of the resolutions of the Purchaser's Board of
Directors, certified by an authorized officer,
authorizing the execution, delivery and performance of
this Agreement and the other Transaction Documents;
(vi) the Administrative Services Agreement duly executed by
the Company; and
(vii) such other instruments and certificates as may be
reasonably requested by the Seller.
(b) At the Closing, the Seller shall deliver to the Purchaser:
(i) certificates representing all of the Stock, duly
endorsed for transfer in blank or accompanied by a stock
power duly endorsed in blank by the Seller, with any
requisite documentary or stock transfer taxes affixed
thereto;
14
(ii) recent good standing certificates and certified articles
of incorporation of the Company and the Seller;
(iii) all books and records relating to the Company and its
business which are not maintained at the Company,
including without limitation, the minute books, stock
books, stock ledger and corporate seals, corporate
operation manuals, policy manuals, insurance policies in
force, bank and checking account records, checks,
deposit slips and signature cards, copies of the
Company's Financial Statements, copies of the Seller's
Financial Statements and copies of the Tax Returns for
the Company and the Seller required to be filed for the
last five (5) years (if applicable);
(iv) such other bills of sale, instruments of assignment and
other documents as may be reasonably requested by the
Purchaser in order to effect or evidence the
transactions contemplated hereunder;
(v) an opinion of counsel to the Seller substantially in the
form of Exhibit 11 hereto;
(vi) a certificate of an authorized executive officer of the
Seller certifying to the fulfillment of the conditions
set forth in Sections 8.01 and 8.02;
(vii) a copy of the resolutions of (i) the Company's Board of
Directors and (ii) the Company's stockholders, certified
by its chief executive officer, authorizing the
execution, delivery and performance of this Agreement
and the other Transaction Documents;
(viii)copies of the Consents referred to in Section 8.17 to
be delivered by the Seller;
(ix) if applicable, payoff letters, UCC-3 termination
statements and other documentation relating to the
release of all security interests encumbering any of the
assets of the Company or the securities being acquired
pursuant to the Merger;
(x) the Administrative Services Agreement duly executed by
the Seller;
[(xi) the IPA Agreement duly executed by the Seller;]
15
(xii) estoppel certificates, Lien waivers and consents of the
landlord(s) with respect to the properties listed on
Schedule 4.18 hereto;
(xiii)the FIRPTA Certificate duly executed by the Seller;
(xiv) the Voting Agreement duly executed by the Seller and the
Physician Stockholders; and
(xv) such other instruments and certificates as may be
reasonably requested by the Purchaser.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
OF THE SELLER AND THE COMPANY
As of the date hereof and as of the Closing Date, the Seller and the
Company, jointly and severally, represent and warrant to the Purchaser and the
Merger Sub, and the Physician Stockholders, jointly and severally, make the
representations set forth in Sections 4.02, 4.03, 4.08 and 4.29, as follows:
Section 4.01 Organization and Qualification. Each of the Company and the
Seller (i) is a corporation duly organized, validly existing and in good
standing as a business corporation under the laws of the State of New Jersey;
(ii) has all corporate power and authority to own, lease and operate its
Properties and to carry on its business as currently being conducted; and (iii)
is not required to be qualified or licensed to do business in any foreign
jurisdiction.
Section 4.02 Authority. The Company and the Seller have the requisite
corporate power and authority, and the Physician Stockholders have the requisite
capacity, to execute and deliver the Transaction Documents and all other
instruments or agreements to be executed in connection herewith or therewith,
and to consummate the transactions contemplated hereby and thereby. The
execution, delivery and performance of the Transaction Documents, and the
consummation of the transactions contemplated hereby and thereby, have been duly
authorized by all necessary corporate action on the part of the Company and the
Seller, and no other corporate proceedings on the part of either the Company or
the Seller are necessary to authorize the Transaction Documents or to consummate
the transactions contemplated hereby or thereby. The Transaction Documents have
been duly executed and delivered by the Company, the Seller and the Physician
Stockholders and, assuming the Transaction Documents constitute valid and
binding obligations of the Purchaser, constitute valid and binding obligations
of the Company, the Seller and the Physician Stockholders enforceable against
the Company, the Seller and the Physician Stockholders in accordance with their
respective terms.
16
Section 4.03 Consents and Approvals; No Violations. Except as set forth on
Schedule 4.03, neither the execution, delivery or performance of this Agreement
or the other Transaction Documents by the Company, the Seller or the Physician
Stockholders, nor the consummation by such parties of the transactions
contemplated hereby or thereby nor compliance by such parties with any of the
provisions hereof or thereof will (i) conflict with or result in any breach of
any provision of the charter or by-laws of either the Company or the Seller,
(ii) require any filing with, or Consent of a Governmental Authority or other
Person by the Company, the Seller or any Physician Stockholder, (iii) (with or
without the giving or receipt of notice or passage of time or both) result in a
violation or breach of, or constitute a default or give rise to any right of
termination, amendment, cancellation or acceleration under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, lease, License,
contract, agreement or other instrument or obligation to which the Company, the
Seller or any of the Physician Stockholders is a party or by which any of its or
their Properties may be bound or subject or (iv) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to the Company, the
Seller or any of the Physician Stockholders or any of its or their Properties,
except, other than with respect to clause (i) above, where the failure to make
any such filing or to obtain any such Consent, or any such violation, breach,
default, termination, amendment, cancellation or acceleration would not have a
Material Adverse Effect.
Section 4.04 Capitalization. The authorized and outstanding Capital Stock
of each of the Company and the Seller as of the date hereof is as set forth on
Schedule 4.04 hereto. All of the outstanding shares of the Capital Stock of the
Company and the Seller are validly issued, fully paid and non-assessable, and
all of the Stock is owned by the Seller, and on the Closing Date, prior to
giving effect to the transactions hereunder, will be owned by the Seller, free
and clear of any Liens. Except as set forth on Schedule 4.04 there are no
outstanding (i) securities convertible into or exchangeable or exercisable for
Capital Stock of the Company or the Seller; (ii) options, warrants or other
rights to purchase or subscribe for Capital Stock of the Company or the Seller
or (iii) contracts, commitments, agreements, understandings or arrangements of
any kind relating to the issuance of any Capital Stock of the Company, any such
convertible, exercisable or exchangeable securities or any such options,
warrants or rights.
Section 4.05Subsidiaries. Except as set forth on Schedule 4.05, neither
the Company nor the Seller own, of record or beneficially, or control, directly
or indirectly, any Capital Stock of any corporation, association or business
entity nor is the Company or the Seller, directly or indirectly, a participant
in any joint venture, partnership or other non-corporate entity.
Section 4.06 Articles of Incorporation and By-laws. Each of the Company
and the Seller has heretofore delivered to the Purchaser true and complete
copies of its Articles of Incorporation and By-laws (or other applicable
organizational documents) as in effect on the date hereof.
Section 4.07 Compliance With Laws; Licenses.
17
(a) The conduct of the operations of the Company and the Seller
(including the conduct of the Physician Employees) has not violated, and as
presently conducted does not violate, any Laws, including, but not limited to,
the Clinical Laboratories Improvements Act of 1988 ("CLIA"), or any other
promulgations, interpretative advice or guidance of any court or Governmental
Authority, including, but not limited to, the Occupational Safety and Health
Administration, the Department of Transportation, the HCFA and the FDA or any
medical industry standards, nor has the Company or the Seller received any
notice of any such violation which remains outstanding, except where any such
violation, individually or in the aggregate, would not have a Material Adverse
Effect.
(b) Permits. Set forth on Schedule 4.07 is a complete and accurate
list of all licenses, certificates, permits, approvals, franchises, notices and
authorizations issued by Governmental Authorities (collectively, the "Permits")
and currently held by the Company or the Seller as of the date hereof. To the
Company's and the Seller's knowledge, the Permits set forth in Schedule 4.07 are
all the Permits required for the conduct of the operations of the Seller and the
Company as currently conducted and, with respect to the Seller, as currently
proposed to be conducted after the Closing. To the Company's and the Seller's
knowledge, all of the Permits set forth in Schedule 4.07 are in full force and
effect, and the Seller and the Company have not engaged in any activity which
would cause or permit revocation, modification, cancellation or suspension of
any such Permit, and no action or proceeding looking to or contemplating the
revocation, modification, cancellation or suspension of any such Permit is
pending or threatened, except where any such revocation, modification,
cancellation or suspension, individually or in the aggregate, would not have a
Material Adverse Effect. Neither the Seller nor the Company has knowledge of any
default or claimed or purported or alleged default or state of facts which, with
or without the giving or receipt of notice or passage of time or both, would
constitute a default by any party, including the Company or the Seller, under,
or give rise to a right of revocation, modification, cancellation or suspension
of, any such Permit. The consummation of the transactions contemplated hereby
will in no way affect the continuation, validity or effectiveness of the Permits
set forth in Schedule 4.07 or require the consent of any Person except as set
forth in Schedule 4.07.
Section 4.08 Litigation; Investigations. Schedule 4.08 sets forth a
complete and accurate list of all suits, claims, proceedings, investigations or
reviews which are pending or, to the knowledge of the Company or the Seller,
threatened against or affecting the Physician Stockholders, the Physician
Employees, the Company, the Seller or directors or officers (in their capacity
as such) of the Company or the Seller or any Properties used by the Company or
the Seller in conducting their respective businesses. Except as disclosed in
Schedule 4.08, (i) to the knowledge of the Company or the Seller, no
investigation or review by any Governmental Authority or other regulatory body
(including trade associations) with respect to either the Company, the Seller or
the Physician Employees is pending or threatened or probable of initiation, nor
has any Governmental Authority or other regulatory body (including trade
associations) indicated to the Company or the Seller an intention to conduct the
same, and (ii) there is no action, suit or proceeding pending or, to the
knowledge of the Company or the Seller,
18
threatened against or affecting the Company or the Seller, at law or in equity,
or before any Governmental Authority or other regulatory body (including trade
associations).
Section 4.09 Taxes.
(a) Except as set forth on Schedule 4.09, each of the Seller and the
Company (collectively, the "Taxpayers") (i) have filed all Tax Returns that were
required to be filed, (ii) all such Tax Returns were, when filed, and continue
to be, correct and complete in all respects, (iii) all Taxes owed by and of the
Taxpayers (whether or not shown on any Tax Return) have been timely paid, (iv)
none of the Taxpayers currently is the beneficiary of any extension of time
within which to file any Tax Return, (v) no claim has ever been made by an
authority in a jurisdiction where either of the Taxpayers do not file Tax
Returns that it is or may be subject to taxation by that jurisdiction, and (vi)
there are no Liens with respect to Taxes on the Stock or any of the assets or
property of the Company.
(b) Each of the Taxpayers has withheld or collected and paid all
Taxes required to have been withheld or collected and paid in connection with
amounts paid or owing to any employee, independent contractor, creditor,
stockholder, other third party, or otherwise.
(c) Except as set forth on Schedule 4.09, there is (i) no dispute or
claim concerning any Tax Liability of either of the Taxpayers either (A) claimed
or raised by any Governmental Authority in writing or (B) as to which either of
the Taxpayers or the directors and officers (and employees responsible for Tax
matters) of either Taxpayer has knowledge and, (ii) no proceeding with respect
to Taxes pending.
(d) Schedule 4.09 sets forth an accurate, correct and complete list
of all federal, state, local, and foreign Tax Returns filed with respect to any
of the Taxpayers or their respective Subsidiaries for taxable periods ended on
or after September 30, 1991, indicates those Tax Returns that have been audited
and indicates those Tax Returns that currently are the subject of audit. The
Seller has delivered to the Purchaser correct and complete copies of all federal
income Tax Returns, examination reports, and statements of deficiencies assessed
against or agreed to by any of the Taxpayers and their subsidiaries since
January 1, 1992. To the knowledge of the Taxpayers and the directors and
officers (and employees responsible for Tax matters) of either of the Taxpayers,
no other audit or investigation with respect to Taxes has been threatened.
(e) Neither of the Taxpayers has waived any statute of limitations
in respect of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency.
(f) None of the assets of the Company are assets that the Purchaser
is or shall be required to treat as being owned by another Person pursuant to
the provisions of Section 168(f)(8) of the Internal Revenue Code of 1954, as
amended and in effect immediately before the
19
enactment of the Tax Reform Act of 1986, or is "tax-exempt use property" within
the meaning of Section 168(h)(1) of the Code.
(g) Neither of the Taxpayers has agreed to make, nor is it required
to make, any adjustments under Section 481(a) of the Code by reason of a change
in accounting method or otherwise.
(h) The Company is not a party to any contract, arrangement or plan
that has resulted or would result, separately or in the aggregate, in the
payment of any "excess parachute payments" within the meaning of Section 280G of
the Code.
(i) Neither of the Taxpayers is a foreign person within the meaning
of Section 1445 of the Code.
(j) The Company is not a party to any agreement, whether written or
unwritten, providing for the payment of Tax liabilities, payment for Tax losses,
entitlement to refunds or similar Tax matters.
(k) No ruling with respect to Taxes relating to the Company has been
requested by or on behalf of the Company.
(l) The Company (A) has never been a member of an affiliated group
(within the meaning of Section 1504 of the Code, or any similar group as defined
for state, local or foreign tax purposes) filing a consolidated federal (or
combined or unitary state, local or foreign) income Tax Return or (B) has no
liability for the taxes of any Person (other than the Company) under Reg. ss.
1.1502-6 (or any similar provision of state, local or foreign Law), as a
transferee or successor, by contract, or otherwise.
(m) The unpaid Taxes of the Taxpayers (A) did not, as of the most
recent fiscal month end, exceed the reserves for Tax liability (rather than any
reserve for deferred Taxes established to reflect timing differences between
book and Tax income) on the books thereof at such time and (B) do not exceed
that reserve as adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of the Taxpayers in filing their
Tax Returns.
(n) For purposes of this Section 4.09, references to the Taxpayers
shall also refer to any predecessor companies.
Section 4.10 Employee Benefit Plans; ERISA.
(a) Attached hereto as Schedule 4.10 are complete and accurate
copies of all Plans which are currently maintained and/or sponsored by the
Company or the Seller, or to which
20
the Company or the Seller currently contributes, has an obligation to contribute
in the future or which have been terminated within the past three years.
(b) Except for the Plans, neither the Company nor the Seller
maintains or sponsors, nor is a contributing employer to, a pension,
profit-sharing, deferred compensation, stock option, employee stock purchase or
other employee benefit plan, employee welfare benefit plan, or any other
arrangement with its employees whether or not subject to ERISA. All Plans are in
compliance with all applicable provisions of ERISA and the regulations issued
thereunder, as well as with all other applicable Laws, and, in all material
respects, have been administered, operated and managed in accordance with the
governing documents. All Plans that are intended to qualify (the "Qualified
Plans") under Section 401(a) of the Code are so qualified and have been
determined by the IRS to be so qualified (or applications for determination
letters have been timely submitted to the IRS), and copies of the current plan
determination letters, most recent actuarial valuation reports, if any, most
recent Form 5500, or, as applicable, Form 5500-C/R filed with respect to each
such Qualified Plan or employee welfare benefit plan and most recent trustee or
custodian report, are included as part of Schedule 4.10. To the extent that any
Qualified Plans have not been amended to comply with applicable Law, the
remedial amendment period permitting retroactive amendment of such Qualified
Plans has not expired and will not expire within 120 days after the Closing
Date. All reports and other documents required to be filed with any Governmental
Authority or distributed to plan participants or beneficiaries (including, but
not limited to, annual reports, summary annual reports, actuarial reports,
PBGC-1 forms, audits or Tax Returns) have been timely filed or distributed.
Neither any Plan, the Seller nor the Company has engaged in any transaction
prohibited under the provisions of Section 4975 of the Code or Section 406 of
ERISA. No Plan has incurred an accumulated funding deficiency (as defined in
Section 412(a) of the Code and Section 302(l) of ERISA); and no circumstances
exist pursuant to which the Company could have any direct or indirect liability
whatsoever (including being subject to any statutory Lien to secure payment of
any such liability), to the PBGC under Title IV of ERISA or to the IRS for any
excise tax or penalty with respect to any plan now or hereafter maintained or
contributed to by the Company, the Seller or any member of a "controlled group"
(as defined in Section 4001(a)(14) of ERISA) that includes the Company or the
Seller; and neither the Company nor the Seller or any member of a "controlled
group" (as defined above) that includes the Company or the Seller currently has
(or at the Closing Date will have) any obligation whatsoever to contribute to
any "multi-employer pension plan" (as defined in ERISA Section 4001(a)(14)), nor
has any withdrawal liability whatsoever (whether or not yet assessed) arising
under or capable of assertion under Title IV of ERISA (including, but not
limited to, Sections 4201, 4202, 4203, 4204, or 4205 thereof) been incurred by
any Plan. Further:
(i) there have been no terminations, partial terminations or
discontinuance of contributions to any Qualified Plan
without a determination by the IRS that such action does
not adversely affect the tax-qualified status of such
Qualified Plan;
21
(ii) no Plan which is subject to the provisions of Title IV
of ERISA, has been terminated;
(iii) there have been no "reportable events" (as that phrase
is defined in Section 4043 of ERISA) with respect to any
Plan which were not properly reported;
(iv) the valuation of assets of any Qualified Plan, as of the
Closing Date, shall equal or exceed the actuarial
present value of all accrued pension benefits under any
such Qualified Plan in accordance with the assumptions
contained in the regulations of the PBGC governing the
funding of terminated defined benefit plans;
(v) with respect to Plans which qualified as "group health
plans" under Section 4980B of the Code and Section
607(1) of ERISA and related regulations (relating to
the benefit continuation rights imposed by "COBRA"),
the Company and the Seller have complied (and on the
Closing Date will have complied) in all respects with
all reporting, disclosure, notice, election and other
benefit continuation requirements imposed thereunder as
and when applicable to such plans, and the Company and
the Seller have not incurred (and will not incur) any
direct or indirect liability and is not (and will not
be) subject to any loss, assessment, excise tax
penalty, loss of federal income tax deduction or other
sanction, arising on account of or in respect to any
direct or indirect failure by the Company or the
Seller, at any time prior to the Closing Date, to
comply with any such federal or state benefit
continuation requirement, which is capable of being
assessed or is asserted before or after the Closing
Date directly or indirectly against the Company or the
Seller with respect to such group health plans;
(vi) neither the Company nor the Seller is currently or has
been within the past five years a member of a
"controlled group" as defined in ERISA Section
4001(a)(14);
(vii) there is no pending litigation, arbitration or disputed
claim, settlement or adjudication proceeding, and, to
the Company's and Seller's knowledge, there is no
threatened litigation, arbitration or disputed claim,
settlement or adjudication proceeding, or investigation
with respect to any Plan, or with respect to any
fiduciary, administrator or sponsor thereof (in their
capacities as such), or any party in interest thereof;
22
(viii)the total pension, medical and other benefit expense for
all Plans are accurately reflected in the Company's
Financial Statements and the Seller's Financial
Statements, respectively, and no material funding
changes or irregularities are reflected thereon which
would cause such financial statements to be not
representative of prior periods; and
(ix) neither the Company nor the Seller has incurred
liability under Section 4062 of ERISA.
If reasonably requested by the Purchaser, the Company will terminate any Plan
identified on Schedule 4.10 as a "Pension or Profit Sharing Plan to be
Terminated" immediately prior to the Closing.
Section 4.11 Labor Relations. The Company and the Seller (i) have
performed all material obligations with respect to their respective employees,
independent sales representatives, consultants, agents, officers and directors,
(ii) have paid or properly accrued for in the Company's Financial Statements
and the Seller's Financial Statements, respectively, all wages, salaries,
commissions, bonuses, severance pay, vacation pay, sick pay, holiday pay,
benefits and other compensation for all services performed by such persons to
the date hereof and all amounts required to be paid or reimbursed to such
persons; (iii) are in compliance in all material respects with all Laws and
regulations respecting employment and employment practices, terms and
conditions of employment and wages and hours; (iv) have no pending, or to the
knowledge of the Company or the Seller, threatened, charge, complaint,
allegation, application or other process against the Company or the Seller
before the National Labor Relations Board or any other Governmental Authority;
(v) have no labor strike, dispute, slowdown or work stoppage or other job
action pending, or to the knowledge of the Company or the Seller, threatened
against or otherwise affecting or involving the Company or the Seller; and (vi)
no employees covered by any collective bargaining agreements and, to the
knowledge of the Company or the Seller, no effort is being made by any union to
organize any employees of the Company or the Seller.
Section 4.12 Insurance Policies. Schedule 4.12 contains a complete and
accurate list of all insurance policies currently providing coverage and that
for the past five (5) years have been providing coverage in favor of the Company
and/or the Seller specifying (i) the insurer and type of insurance under each
policy and (ii) the claims history under each policy. Each current policy is in
full force and effect and all premiums are currently paid and no notice of
cancellation or termination has been received with respect to any such policy.
Such policies have been sufficient for compliance with all material requirements
of Law. Neither the Company nor the Seller has been refused any insurance with
respect to its assets and operations, nor has its coverage been limited by any
insurance carrier to which it has applied for any such insurance or with which
it has carried insurance during the last five (5) years. The Company and the
Seller have insured by reputable insurers the assets used by the Company and the
Seller in the conduct of their
23
respective businesses that are of an insurable character against risks of
liability, casualty and fire in adequate amounts and consistent with prudent
industry practice and all contractual requirements, and maintains such insurance
against hazards, risks and liability to Persons and property to the extent and
in the manner customary for companies in similar businesses, similarly situated,
and such insurance has been effective, in full force and effect, without
interruption since the date the Company or the Seller, as the case may be,
commenced business. Except as set forth on Schedule 4.12, neither the Company
nor the Seller has any outstanding claims, settlements or premiums owed with
respect to any insurance policy, and the Company and the Seller have given all
notices or have presented all potential or actual claims under any insurance
policy in due and timely fashion. Since January 1, 1995, neither the Company nor
the Seller has filed a written application for any professional liability
insurance coverage which has been denied by an insurance agency or carrier, and
each of the Company and the Seller have been continuously insured for
professional malpractice claims and errors and omissions claims for at least the
past seven years (or with respect to the Company, since it began conducting
business). The insurance specified on Schedule 4.12 has been effective, in full
force and effect, without interruption since the date specified on Schedule 4.12
as the initial date of coverage.
Section 4.13 Financial Statements and Books and Records. The Company has
previously delivered to the Purchaser a copy of the Company's Financial
Statements, and the Seller has previously delivered to the Purchaser a copy of
the Seller's Financial Statements. The 1998 Company Financial Statements, the
1997 Company Financial Statements, the 1996 Company Financial Statements, the
1998 Seller Financial Statements, the 1997 Seller Financial Statements and the
1996 Seller Financial Statements have been audited by the Accountants, and the
Interim 1998 Company Financial Statements and the Interim 1998 Seller Financial
Statements have been reviewed by the Accountants, and each of such Financial
Statements are true and accurate, are in accordance with the books and records
of the Company or the Seller, as the case may be, present fairly in all material
respects the financial position and related results of operations of the Company
and the Seller, respectively, as of the dates and for the periods referred to
therein, in accordance with GAAP. All of the financial books and records of the
Company and the Seller have been made available to the Purchaser and such books
and records completely and fairly record in all material respects the financial
affairs of the Company and the Seller, respectively, which should normally be
recorded in financial books and records.
Section 4.14 No Material Adverse Change. Since September 30, 1998, except
as set forth on Schedule 4.14 or as otherwise previously disclosed in writing to
Xxxxxxx X. Xxxxxx and/or Xxxxxx Xxxx, there has been no material adverse change
in the business, operations, condition (financial or otherwise), liabilities or
assets of the Company or the Seller, and neither the Company nor the Seller
knows of any change that is threatened or pending or any facts or circumstances
which could give rise to or cause such a change (other than general conditions
affecting the industry as a whole), nor has there been any damage, destruction
or loss, whether or not covered by insurance, which could have a Material
Adverse Effect.
24
Section 4.15 Absence of Liabilities. Except as described on Schedule 4.15,
neither the Company nor the Seller has any debt, liabilities or obligations of
any nature, whether accrued, absolute, contingent or otherwise, whether due or
to become due and whether or not the amount thereof is readily ascertainable,
that are not accurately reflected as a liability in the 1998 Company Financial
Statements or the 1998 Seller Financial Statements, as the case may be, except
for liabilities incurred by the Company or the Seller, as the case may be,
subsequent to September 30, 1998 and in the ordinary course of business
consistent with past practices which are not (i) otherwise prohibited by, in
violation of or which will result in a breach of the representations, warranties
or covenants of the Company or the Seller contained in this Agreement and (ii)
material, either individually or in the aggregate.
Section 4.16 Absence of Specified Changes. Except as disclosed on Schedule
4.16, since September 30, 1998, there has not been with respect to either the
Company or the Seller any:
(a) action, omission or other facts or circumstances which would
result in a material adverse change, whether direct or indirect, in the
business, operations, condition (financial or otherwise), prospects, liabilities
or assets of the Company or the Seller, whether or not insured;
(b) transaction not in the ordinary course of business, including,
without limitation, any sale of a material portion of the assets of the Company
or the Seller or any merger of the Company or the Seller and any other entity;
(c) individual unfulfilled commitment as of the date of this
Agreement requiring expenditures by the Company or the Seller exceeding $10,000
(excluding commitments expressly described elsewhere in this Agreement or the
Schedules hereto);
(d) material damage, destruction or loss, whether or not insured;
(e) failure to maintain in full force and effect substantially the
same level and types of insurance coverage as in effect on September 30, 1998 or
destruction, damage to, or loss of any asset of the Company or the Seller
(whether or not covered by insurance) that could have a Material Adverse Effect;
(f) change in accounting principles, methods or practices,
investment practices, claims, payment and processing practices or policies
regarding intercompany transactions;
(g) revaluation of any assets or material write down of the value of
any assets;
25
(h) declaration, setting aside, or payment of a dividend or other
distribution in respect of the Capital Stock of the Company or the Seller, or
any direct or indirect redemption, purchase or other acquisition of any shares
of such Capital Stock;
(i) issuance or sale of any shares of any Capital Stock;
(j) amendment to its Articles of Incorporation or By-laws;
(k) sale, assignment or transfer of any tangible or intangible
asset, including any rights to intellectual property, except in the ordinary
course of business, consistent with past practice;
(l) disposition of or lapse of any patent, trademark, trade name,
service xxxx or copyright or any application for the foregoing, or disposition
of any technology, software or know-how, or any license, permit or authorization
to use any of the foregoing;
(m) mortgage, pledge or other encumbrance, including Liens and
security interests, of any tangible or intangible asset;
(n) discharge or satisfaction of any Lien or payment or cancellation
of any liability other than payment of current liabilities in the ordinary
course of business, consistent with past practice;
(o) cancellation of any debt or waiver or release of any material
contract, right or claim, except for cancellations, waivers and releases in the
ordinary course of business, consistent with past practice, which do not exceed
$10,000 in the aggregate;
(p) indebtedness incurred for borrowed money or any commitment to
borrow money, any capital expenditure or capital commitment requiring an
expenditure of monies in the future, any incurrence of a contingent liability or
any guaranty or commitment to guaranty the indebtedness of others entered into,
by the Company or the Seller, other than customary transactions in the ordinary
course of business not in excess of $10,000 in the aggregate;
(q) amendment, termination or revocation of (or notice of intent to
do so), or a failure to perform obligations or the occurrence of any default (or
other event which, with or without the giving or receipt of notice or the
passage of time or both, would result in a notice of cancellation, acceleration
or termination) under, any contract or agreement to which the Company, is, or as
of September 30, 1998 was, a party or of any license, permit or franchise
required for the continued operation of any business conducted by the Company or
the Seller on September 30, 1998;
(r) increase or commitment to the increase of the salary or other
compensation payable or to become payable to any of its officers, directors or
employees, agents
26
or independent contractors, or the payment of any bonus to the foregoing persons
except in the ordinary course of business, consistent with past practice and
applicable policies and procedures of the Company; or
(s) agreement or understanding to take any of the actions described
above in this Section 4.16.
Section 4.17 Corporate Names. Schedule 4.17 sets forth a complete and
accurate list of names used by either the Company or the Seller in addition to
their respective corporate names.
Section 4.18 Real Property; Leases. Except as set forth on Schedule 4.18,
neither the Company nor the Seller owns, leases, or subleases any real property.
The Company and the Seller have heretofore delivered to the Purchaser a complete
and accurate copy of each such lease and sublease. Unless otherwise noted on
Schedule 4.18, the Company or the Seller, as the case may be, is the sole lessee
or sublessee under each of the leases and subleases listed on Schedule 4.18 and
each such lease and sublease is valid and in full force and effect and
enforceable in accordance with its terms and has not been further supplemented,
amended or modified. Unless otherwise noted on Schedule 4.18, there exists no
event of default or event, occurrence, condition or act, including without
limitation the execution and delivery of this Agreement and the other
Transaction Documents and the consummation of the transactions contemplated
hereunder and thereunder, which constitutes or would constitute (with or without
the giving or receipt of notice or the passage of time or both) a default in any
respect, or give rise to a right of acceleration, cancellation or termination,
under any of the leases or subleases on Schedule 4.18. Neither the Company nor
the Seller has received any notice of any event of default or event, occurrence,
condition or act, including without limitation the execution and delivery of
this Agreement and the other Transaction Documents and the consummation of the
transactions contemplated hereunder and thereunder, which constitutes or would
constitute (with or without the giving or receipt of notice or the passage of
time or both) a default in any respect, or give rise to a right of acceleration,
cancellation or termination, under any of the leases or subleases on Schedule
4.18. Each party to a lease or sublease listed on Schedule 4.18 has complied
with all commitments and obligations on its part to be performed or observed
under such lease or sublease. The Company or the Seller have been in peaceable
possession of the Leased Premises since the commencement of the original term of
each respective lease or sublease listed on Schedule 4.18. The Leased Premises
are structurally sound with no defects and are in good operating condition and
repair and are adequate to meet all present and reasonably anticipated future
requirements of the operations of the Company or the Seller, as the case may be,
as currently conducted or as proposed to be conducted; and none of such Leased
Premises are in need of maintenance or repairs except for ordinary, routine
maintenance and repairs which are not material in nature or cost. The real
property covered by any leasehold interests listed on Schedule 4.18, the
buildings, fixtures and improvements on such, and the present use thereof,
comply in all material respects with all restrictive covenants, deeds and other
restrictions and all Laws, including provisions relating to permissible
nonconforming uses, if any, and any such premises are not presently
27
affected, nor to the knowledge of the Company or the Seller threatened, by any
condemnation or eminent domain proceeding or any proceeding by a mortgagee.
Section 4.19 Equipment and Personal Property. Schedule 4.19 sets forth a
complete and accurate description of all equipment and personal property owned
by the Company or the Seller as well as all capital leases and operating leases
pursuant to which the Company or the Seller leases property. Except as described
in Schedule 4.19, all equipment and tangible personal property used by the
Company is either owned, free and clear of all Liens or are (i) used under
capital leases and reflected as such in either the Company's Financial
Statements, the Seller's Financial Statements or Schedule 4.19 hereto, as the
case may be, or (ii) used under operating leases. All such leases are valid and
in full force and effect and enforceable in accordance with their terms and have
not been supplemented, amended or modified. Neither the Company nor the Seller
has received any notice of, and there exists no event of default, or event,
occurrence, condition or act, including, without limitation, the execution and
delivery of this Agreement and the other Transaction Documents, the consummation
of the transactions contemplated herein and therein, which constitutes or would
constitute (with or without the giving or receipt of notice or the passage of
time or both) a default in any respect, or give rise to a right of acceleration,
cancellation or termination, under any such lease. All of the equipment and
tangible personal property owned or leased by the Company or the Seller is in
good operating condition and repair, subject to normal wear and tear, none of
such assets is in need of maintenance or repairs except for ordinary, routine
maintenance and such assets are suitable for and operating according to their
intended use in accordance with industry standards.
Section 4.20 Intellectual Property. Schedule 4.20 contains a complete and
accurate schedule of all trade names, trademarks, service marks, patents and
copyrights (including any registrations or pending applications for registration
of any of the foregoing), trade secrets, inventions, processes, formulae,
technology, technical data, information and know-how, and all licenses or other
rights relating to any of the foregoing that are attributable to the conduct of,
used in, or related to, the operations of either the Company or the Seller
(collectively, the "Intangible Property"). Except as set forth on Schedule 4.20
and other than with respect to widely available "shrink wrap" software, to the
knowledge of the Company or the Seller, (i) either the Company or the Seller has
sole and exclusive good, valid and transferable title with respect to the
Intangible Property, (ii) no royalties or other consideration is required in
connection with the Company's or the Seller's use and enjoyment of the
Intangible Property and (iii) no claim has been asserted by any Person against
the Company or the Seller with respect to the ownership or use of any of the
Intangible Property by either the Company or the Seller nor has the Company or
the Seller asserted any similar claim against any Person, and, to the knowledge
of the Company or the Seller, there exists no valid basis for any such claim.
Section 4.21 Software. Schedule 4.21 contains a complete and accurate list
of all computer software, databases and programs utilized by either the Company
or the Seller, as the case may, in the conduct of the operations of either the
Company or the Seller. Except as set
28
forth on Schedule 4.21, all such computer software, databases and programs are
owned by, or licensed to the Company or the Seller, without any restrictions
thereon.
Section 4.22 Contracts.
(a) Schedule 4.22 sets forth a complete and accurate list of all
material contracts, agreements, arrangements and other instruments to which the
Company or the Seller is a party or by which the Company or the Seller or any of
their respective properties or assets are bound (hereinafter referred to
collectively as the "Contracts"). Each of the Contracts is in full force and
effect and enforceable in accordance with its terms. Neither the Company nor the
Seller has received notice of cancellation of or intent to cancel, or notice to
make a material modification or intent to make a material modification in, any
of the Contracts. There exists no basis for the Seller or the Company to believe
that the consummation of the transactions hereunder would result in the early
termination of any of the Contracts or would have an adverse effect on either
the Company or the Seller. There exists no event of default or event,
occurrence, condition or act on the part of either the Company or the Seller or,
to the knowledge of the Company or the Seller, on the part of the other party to
such Contracts which constitutes or would constitute (with or without the giving
or receipt of notice or the passage of time or both) a breach under, or cause or
permit acceleration of, any obligation of the Company. Except as set forth on
Schedule 4.22, no consent of any other party to any of the Contracts is required
in connection with the execution, delivery and performance of this Agreement or
the other Transaction Documents by the Company or the Seller or the Physician
Stockholders.
(b) Neither the Company nor the Seller is a party to or bound by any
agreement which limits the freedom of either the Company or the Seller to
compete in any line of business or with any Person.
(c) As of the Closing, employees of the Company who continue their
employment with the Company shall not be restricted by the provisions of any
employment agreement or noncompetition agreement between any such employee and
the Seller, to the extent that such agreement would restrict such employees from
engaging in any business conducted by the Company.
(d) Neither the Company nor the Seller is a party to or bound by any
agreement (written or oral) requiring the payment of fees or other obligations
to any Person in connection with the sale of the Company's or the Seller's
services.
Section 4.23 Inventory. Schedule 4.23 sets forth a complete and accurate
list of all inventory of the Company and the Seller as of September 30, 1998.
All inventory of the Company and the Seller consists of a quality and quantity
usable in the ordinary course of business as currently labeled and classified in
the inventory records, except for items of obsolete materials and materials of
below-standard quality, all of which have been written off or down to fair
market value.
29
Section 4.24 Directors, Officers and Employees. Schedule 4.24 sets forth a
complete and accurate list of the names, titles and compensation of all
directors, officers and employees of the Company and the Seller.
Section 4.25 Title to Properties; Liens. The Company and the Seller have
good, valid and marketable title to all of their respective assets, free and
clear of Liens, except for such Liens specifically set forth on Schedule 4.25.
Section 4.26 Condition of Assets. The assets of the Company and the Seller
are in good working order and condition, subject to normal wear and tear, and
have no defects which would materially interfere with the operation of each of
their respective businesses as presently conducted or to be conducted after the
Closing Date.
Section 4.27 Transactions with Affiliates. Except as set forth on Schedule
4.27, no officer, director, employee or stockholder of or consultant to the
Company or the Seller (a) has borrowed money from, or loaned money to, either
the Company or the Seller, (b) is a party to any material contract with either
the Company or the Seller, (c) has asserted or threatened to assert any claim
against either the Company or the Seller or (d) is engaged in any material
transaction with either the Company or the Seller.
Section 4.28 Valid Transfer. At the Closing, the Seller will convey to the
Purchaser good and marketable title to the Stock, free and clear of any Lien of
any nature whatsoever.
Section 4.29 Absence of Certain Practices. To the knowledge of the
Company, the Seller or any Physician Stockholder, neither the Company, the
Seller nor any director, officer, agent, employee or other Person acting on
behalf of either the Company or the Seller, has given or agreed to give any
gift or similar benefit of more than nominal value to any customer, supplier,
or employee or official of any Governmental Authority or any other Person who
is or may be in a position to help or hinder the Company or the Seller or
assist the Company or the Seller in connection with any proposed transaction
involving the Company or the Seller. To the knowledge of the Company or the
Seller, neither the Company, the Seller nor any director, officer, agent,
employee, or other Person acting on behalf of the Company or the Seller has (i)
used any corporate or other funds for unlawful contributions, payments, gifts,
or entertainment, or made any unlawful expenditures relating to political
activity to, or on behalf of, employees of any Governmental Authority or others
or (ii) accepted or received any unlawful contributions, payments, gifts or
expenditures.
Section 4.30 Accounts Payable. All accounts payable and accrued expenses
reflected in the Company's Financial Statements and the Seller's Financial
Statements arose from bona fide transactions in the ordinary course of business.
Section 4.31 Accounts Receivable. Each of the accounts receivable of
the Company and the Seller, whether or not sold to a factor, (a) arose from
bona fide sales in the ordinary
30
course of business, (b) was entered into under circumstances and by methods
usual and customary in their respective businesses in the applicable state and
the collection practices used with respect thereto have been and are in all
respects legal and proper, (c) was entered into, and credit granted pursuant
thereto, consistent with the historical credit policies and practices of the
Company and the Seller, respectively, and (d) are good and fully collectible, in
each case at the aggregate recorded amounts thereto without right of recourse,
defense, deduction, counterclaim, off-set or set-off on the part of the obligor.
The books of the Company and the Seller, respectively, correctly record the
principal balance of all accounts receivable and amounts due from any factor,
and each of the security instruments securing any account receivable or amount
due from any factor, if any, constitutes a valid lien in favor of either the
Company or the Seller, as the case may be, upon the property which it describes,
and is enforceable by either the Company or the Seller, as the case may be.
Section 4.32 Identification of Depositories and Authority. Schedule 4.32
lists the names and addresses of all banks, trust companies, savings and loan
associations and other financial institutions in which the Company has accounts,
deposits or safe deposit boxes and the signatories thereunder.
Section 4.33 WARN Act. The Company has not violated the Worker Adjustment
and Retraining Notification Act of 1988 or any similar state Law.
Section 4.34 Records. All books and records relating to the operations of
the Company since inception, including, but not limited to, recruiting records,
Patient Files and other records required by Governmental Authorities or
otherwise, are true, accurate and complete and are kept at __________________.
Section 4.35 Medicine. The Company is not conducting a medical practice or
engaged in the practice of medicine.
Section 4.36 Fraud and Abuse. To the knowledge of the Company or the
Seller, the Company, the Seller and their respective officers, directors,
employees, stockholders and providers, have not engaged in any activities which
are prohibited under federal Medicare or Medicaid statutes, 42 U.S.C. Sections
1320a-7a and 7b, or the regulations promulgated pursuant to such statutes or
state or local healthcare or insurance Laws or which are prohibited by rules of
professional conduct or which otherwise could constitute fraud, including, but
not limited to, the following: (i) making or causing to be made a false
statement or representation of a material fact in any application for any
benefit or payment; (ii) making or causing to be made any false statement or
representation of a material fact for use in determining rights to any benefit
or payment; (iii) failing to disclose knowledge by a claimant of the occurrence
of any event affecting the initial or continued right to any benefit or payment
on its behalf or on behalf of another, with intent to secure such benefit or
payment fraudulently; and (iv) soliciting, paying or receiving any remuneration
(including any kickback, bribe, or rebate), directly or indirectly, overtly or
covertly, in cash or in kind or offering to pay such remuneration (a) in return
for
31
referring an individual to the Seller for the furnishing or arranging for the
furnishing of any item or service for which payment may be made in whole or in
part by Medicare or Medicaid, or (b) in return for purchasing, leasing, or
ordering or arranging for or recommending purchasing, leasing, or ordering any
good, facility, service, or item for which payment may be made in whole or in
part by Medicare or Medicaid.
Section 4.37 Third-Party Payors. All contracts with third-party payors
were entered into by either the Company or the Seller in the ordinary course of
business. The Company and the Seller have made available to the Purchaser an
accurate and complete list of all third-party payors which have agreements with
either the Company or the Seller, and the Company or the Seller has provided to
the Purchaser accurate and complete copies of all such contracts. Except as set
forth on Schedule 4.37, the Company and the Seller are in compliance in all
material respects with each third-party payor's contract, and, to the Company's
and the Seller's knowledge, has properly charged and billed in accordance with
the terms of those contracts, including, where applicable, billing and
collection of all deductibles and co-payments.
Section 4.38 Compliance with Medicare and Medicaid Programs. The Company
and the Seller have timely and accurately filed all requisite claims and other
reports required to be filed in connection with all state and federal Medicare
and Medicaid programs in which either the Company or the Seller participate and
which were due on or before the Closing Date, except where the failure to so
timely and accurately file claims and reports would not have a Material Adverse
Effect. There are no Claims pending or, to the knowledge of the Company or the
Seller, threatened or scheduled before any Governmental Authority, including
without limitation, any intermediary, carrier, the HCFA or any other state or
federal agency with respect to any Medicare or Medicaid claim filed by the
Company or the Seller on or before the Closing Date. Except for routinely
scheduled reviews pursuant to the Medicare and Medicaid Contracts to which the
Company or the Seller are a party to, no valid review or program integrity
review related to either the Company or the Seller has been conducted by any
Governmental Authority or otherwise in connection with the Medicare or Medicaid
programs and no such review is scheduled, or to the knowledge of the Company or
the Seller, pending or threatened against or affecting the Company, the Seller,
or the business or assets of either the Company or the Seller, or the
consummation of the transactions contemplated hereby.
Section 4.39 Rate Limitations and Rates. To the Company's and the Seller's
knowledge, the Seller charges rates and accordingly bills for services which are
legal and proper.
Section 4.40 Participation in Audits. Except as previously disclosed in
writing to Xxxxxxx X. Xxxxxx and/or Xxxxxx Xxxx, neither the Company nor the
Seller has been informed of any Recoupment Claims arising in connection with
audits or reviews conducted by Medicaid, Medicare or private insurance
companies. To the Company's and the Seller's knowledge, there is no basis for
any Recoupment Claims based upon cost reports, claims or bills submitted or to
be submitted in connection with services rendered by either the Company or the
Seller which, individually or in the aggregate, are material.
32
Section 4.41 Reimbursement Documentation. The Company and the Seller have
filed when due any and all costs reports and other documentation and reports, if
any, required to be filed with third-party payors and Governmental Authorities
in compliance with applicable contractual provisions and Laws.
Section 4.42 DVI Term Loan. As of the date hereof and as of the Closing
Date, the Company is current with all of its obligations and liabilities in
connection with the DVI Term Loan and is not otherwise in default (with or
without the giving or receipt of notice or passage of time or both) under any
term of the DVI Term Loan.
Section 4.43 Environmental Laws. The Seller, the Company and all
properties owned or operated by the Seller or the Company have complied during
the time the Seller and the Company have operated their respective businesses
and currently comply with all Environmental Laws and neither the Seller nor the
Company has received any communication (whether from a Governmental Authority,
private party, employee or otherwise) that alleges that the Seller or the
Company is not in such compliance, and, to the knowledge of the Company or the
Seller, there are no circumstances that may prevent or interfere with such
compliance in the future or otherwise give rise to any liability or other loss
under such Environmental Laws. The Company and the Seller have all Licenses
required under the Environmental Laws in connection with the operations of
their respective businesses including any permits or licenses relating to
disposals or emissions. To the knowledge of the Company or the Seller, neither
the Seller nor the Company has been named or threatened to be named a
"potentially responsible party" within the meaning of CERCLA or any similar
Law.
Section 4.44 Patients. All materials relating to the Patients are complete
and accurate and have been maintained in accordance with all requirements of
Governmental Authorities and other bodies having jurisdiction over the Seller.
The Company and the Seller have no materials or information relating to the
Patients other than the Patient Files. To the knowledge of the Company or the
Seller, except as set forth in Schedule 4.44, there are no adverse relationships
between the Seller, or a Physician Employee, and any Patient that the Seller has
ever had that may have a Material Adverse Effect.
Section 4.45 Medical Waste. With respect to the generation,
transportation, treatment, storage, and disposal, or other handling of, Medical
Waste, the Seller has complied in all material respects with all Medical Waste
Laws.
Section 4.46 Patient Referrals. No Person having a "financial
relationship", as that term is defined in 42 U.S.C. Section 1395nn or New Jersey
Administrative Code 13:36-6.17, with the Company or the Seller directly or
indirectly refers patients or services to the Seller, which referral (to the
Company's and the Seller's knowledge) does not comply with the requirements of
42 U.S.C. Section 1395nn or New Jersey Statutes Annotated 45:9-22 et. seq. and
the regulations promulgated pursuant thereto.
33
Section 4.47 Physician Self-Referral. The Company and the Seller and their
respective officers, directors, employees, stockholders and providers have not
engaged in any activities with the knowledge that such activities are prohibited
under the federal Physician Self-Referral Law (42.U.S.C. ss.1395nn) or the
regulations promulgated pursuant to such statutes or related state or local
statutes or regulations, including N.J. Rev. Stat. ss.45.9-22.5.
Section 4.48 Disclosure. No representation, warranty or statement made by
the Company, the Seller or the Physician Stockholders in (i) this Agreement,
(ii) the Schedules attached hereto, or (iii) any other Transaction Document or
other written material furnished (or to be furnished) and prepared by the
Company or the Seller to the Purchaser, the Merger Sub, or their respective
representatives, attorneys and accountants pursuant to this Agreement or any
other Transaction Document, contains or will contain any untrue statement of a
material fact, or omits or will omit to state a material fact required to be
stated herein or therein or necessary to make the statements contained herein or
therein, in light of the circumstances under which they were made, not
misleading.
Section 4.49 Investment Intent of the Seller. The Seller represents that
(i) by reason of its business and financial experience, and the business and
financial experience of those persons, if any, retained by it to advise it with
respect to its acquisition of the Common Stock Consideration and the Preferred
Stock pursuant hereto, the Seller, together with such advisers, have such
knowledge, sophistication and experience in business and financial matters as to
be capable of evaluating the merits and risks of the prospective acquisition,
and that it is purchasing the Common Stock Consideration and the Preferred Stock
for its own account and not with a view to the distribution thereof or with any
present intention of distributing or selling any of the Common Stock
Consideration or the Preferred Stock except in compliance with the Securities
Act, (ii) it understands and agrees that the Purchaser's offer and sale of the
Common Stock Consideration and the Preferred Stock have not been registered
under the Securities Act and the Common Stock Consideration and the Preferred
Stock may be resold only if registered pursuant to the provisions thereunder or
if an exemption from registration is available and (iii) it has received all the
information it has requested from the Purchaser and has had the opportunity to
ask questions of the Purchaser and, relying on the completeness and accuracy of
such information, the Seller believes such information is sufficient to make an
informed decision with respect to its acquisition of the Common Stock
Consideration and the Preferred Stock.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF
THE PURCHASER AND THE MERGER SUB
The Purchaser and the Merger Sub represent and warrant to the Seller as
follows:
Section 5.01 Organization and Qualification. Each of the Purchaser and the
Merger Sub (i) is a corporation duly organized, validly existing and in good
standing as a business
34
corporation under the laws of the State of Delaware, (ii) has all corporate
power and authority to own, lease and operate its properties and to carry on its
business as currently being conducted, except where the failure to be so
organized, existing and in good standing or to have such power and authority
would not have a material adverse effect on it.
Section 5.02 Authority.
(a) The Purchaser and the Merger Sub have the requisite corporate
power and authority to execute and deliver the Transaction Documents and all
other instruments or agreements to be executed in connection herewith or
therewith, and to consummate the transactions contemplated hereby and thereby.
The execution, delivery and performance of the Transaction Documents, and the
consummation of the transactions contemplated hereby and thereby, have been duly
authorized by all necessary corporate action on the part of the Purchaser and
the Merger Sub and no other corporate proceedings on the part of the Purchaser
or the Merger Sub are necessary to authorize the Transaction Documents or to
consummate the transactions contemplated hereby or thereby. The Transaction
Documents to which it is a party have been duly executed and delivered by the
Purchaser and the Merger Sub and, assuming the Transaction Documents constitute
valid and binding obligations of the Seller, the Company and the Physician
Stockholders, constitute valid and binding obligations of the Purchasers and the
Merger Sub, enforceable against the Purchaser and the Merger Sub in accordance
with their respective terms.
(b) When paid for by, and issued to, the Seller in accordance with
the terms hereof, the Common Stock Consideration will be duly authorized,
validly issued, fully paid and non-assessable and will not have been issued in
violation of any preemptive right of stockholders or rights of first refusal;
and the Seller will have good title to such Common Stock, free and clear of all
Liens (other than any created by the Seller or any Physician Stockholder or
applicable federal or state securities Laws relating to restrictions on the
transferability thereof and other than as provided in the Transaction Documents,
including the Administrative Services Agreement and Voting Agreement).
(c) The Preferred Stock that is being offered and sold to the Seller
at the Closing will have the voting powers, dividend rights, liquidation rights,
designations, preferences and relative, participating, optional or other special
rights, and the qualifications, limitations and restrictions thereof, as set
forth in the Certificate of Designations attached hereto as Exhibit 10, which
will be filed with the Secretary of State of the State of Delaware prior to the
Closing. When paid for by, and issued to, the Seller in accordance with the
terms hereof, the Preferred Stock will be duly authorized, validly issued, fully
paid and non-assessable and will not have been issued in violation of any
preemptive right of stockholders or rights of first refusal; and the Seller will
have good title to such preferred stock, free and clear of all Liens (other than
any created by the Seller or any Physician Stockholder or applicable federal or
state securities Laws). On or prior to the Closing, the shares of Common Stock
(the "Conversion Shares") issuable upon conversion of the Preferred Stock will
have been reserved for issuance therefor by the Purchaser
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and, when converted by, and issued to, the Seller in accordance with the terms
of the Preferred Stock, the Conversion Shares will be duly authorized, validly
issued, fully paid and non-assessable and will not have been issued in violation
of any preemptive right of stockholders or rights of first refusal; and the
Seller will have good title to such stock, free and clear of all Liens (other
than any created by the Seller or any Physician Stockholder or other holder
thereof or applicable federal or state securities Laws relating to restrictions
on the transferability thereof and other than as provided in the Transaction
Documents, including the Administrative Services Agreement and Voting
Agreement).
Section 5.03 Consents and Approvals; No Violations. Neither the execution,
delivery or performance of this Agreement or the other Transaction Documents by
the Purchaser or the Merger Sub, nor the consummation by the Purchaser or the
Merger Sub of the transactions contemplated hereby or thereby nor compliance by
the Purchaser or the Merger Sub with any of the provisions hereof or thereof
will (i) conflict with or result in any breach of any provision of the charter
or by-laws of either the Purchaser or the Merger Sub, (ii) require any filing
with, or Consent of, any Governmental Authority or other Person by the Purchaser
or the Merger Sub, (iii) (with or without the giving or receipt of due notice or
the passage of time or both) result in a violation or breach of, or constitute a
default or give rise to any right of termination, amendment, cancellation or
acceleration under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, lease, License, contract, agreement or other
instrument or obligation to which the Purchaser or the Merger Sub is a party or
by which any of its properties or assets may be bound or subject, or (iv)
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to the Purchaser or the Merger Sub or any of their respective
properties or assets, except, other than with respect to clause (i) above, where
the failure to make any such filing or to obtain any such Consent, or any such
violation, breach, default, termination, amendment, cancellation or acceleration
would not have a material adverse effect on the Purchaser or the Merger Sub.
Section 5.04 Capitalization. The authorized capital stock of the Purchaser
consists of fifty million (50,000,000) shares of Common Stock and one million
(1,000,000) shares of preferred stock, par value $0.10 per share ("Purchaser
Preferred Stock"), of the Purchaser. As of ______, 1999, _______ shares of
Common Stock and _____ shares of Purchaser Preferred Stock were issued and
outstanding. As of ______, 1999, options and warrants exercisable to purchase an
aggregate of _____ shares of Common Stock from the Purchaser were outstanding.
Section 5.05 Commission Filings. The Purchaser has filed all required
forms, reports and other documents with the Commission for periods from and
after December 31, 1997 (collectively, the "Commission Filings"), each of which
has complied in all material respects with all applicable requirements of the
Securities Act and the Exchange Act. The Purchaser has heretofore made available
to the Seller all of the Commission Filings, including the Purchaser's (i)
Annual Report on Form 10-K for the year ended December 31, 1997; (ii) Quarterly
Report on Form 10-Q for the quarter ended March 31, 1998; (iii) Quarterly Report
on Form 10-Q for the quarter ended June 30, 1998; (iv) Quarterly Report on Form
10-Q for the quarter ended
36
September 30, 1998; and (v) proxy statement filed with the Commission relating
to the Purchaser's 1998 annual meeting of stockholders. As of their respective
dates, the Commission Filings (including all exhibits and schedules thereto and
documents incorporated by reference therein) did not contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements made, in light of the circumstances under which they were
made, not misleading. The audited financial statements and unaudited interim
financial statements of the Purchaser (the "Purchaser Financial Statements")
included or incorporated by reference in such Commission Filings have been
prepared in accordance with GAAP (except as may be indicated in the notes
thereto or, in the case of the unaudited statements, as permitted by Form 10-Q),
complied as of their respective dates in all material respects with applicable
accounting requirements and the published rules and regulations of the
Commission with respect thereto, and fairly present the financial position of
the Purchaser as of the dates thereof and the income and retained earnings and
sources and applications of funds for the periods then ended (subject, in the
case of any unaudited interim financial statements, to the absence of footnotes
required by GAAP and normal year-end adjustments).
Section 5.06 No Material Adverse Change. Since September 30, 1998, except
as set forth on Schedule 5.06, there has been no material adverse change in the
business, operations, condition (financial or otherwise), liabilities or assets
of the Purchaser and, to the knowledge of the Purchaser, there are no changes
threatened or pending or any facts or circumstances which the Purchaser believes
are likely to give rise to or cause such a change (other than general conditions
affecting the industry as a whole), nor has there been any damage, destruction
or loss, whether or not covered by insurance, which could have a material
adverse effect on the Purchaser or the Merger Sub.
Section 5.07 Absence of Liabilities. Except as described on Schedule 5.07
or in any Commission Filing, the Purchaser has no debt, liabilities or
obligations of any nature, whether accrued, absolute, contingent or otherwise,
whether due or to become due and whether or not the amount thereof is readily
ascertainable, that are not accurately reflected as a liability in the Purchaser
Financial Statements, except for liabilities incurred by the Purchaser,
subsequent to September 30, 1998 and in the ordinary course of business
consistent with past practices which are not (x) otherwise prohibited by, in
violation of or which will result in a breach of the representations, warranties
or covenants of the Purchaser contained in this Agreement and (y) material,
either individually or in the aggregate.
Section 5.08 Litigation. Schedule 5.08 sets forth a complete and accurate
list of all material suits, claims, proceedings, investigations or reviews which
are pending or, to the knowledge of the Purchaser, threatened against or
affecting the Purchaser or the Merger Sub or directors or officers (in their
capacity as such) of the Purchaser or the Merger Sub or any of their respective
assets and properties.
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Section 5.09 Taxes. Except as set forth on Schedule 5.09, the Purchaser
(i) has filed all Tax Returns that were required to be filed, (ii) all such Tax
Returns were, when filed, and continue to be, correct and complete in all
material respects, and (iii) all Taxes owed by the Purchaser have been timely
paid in all material respects.
ARTICLE VI.
CERTAIN COVENANTS
Section 6.01 Access to Information. From the date hereof until the
Effective Time, the Purchaser and its directors, officers, employees, agents,
attorneys, accountants and other representatives shall have full access, upon
reasonable notice and during normal business hours, to the employees and
financial, legal and other representatives of the Company and the Seller with
knowledge of the Company's and the Seller's business and operations, such
persons to be instructed by the Company and the Seller to make full and candid
disclosure of all information reasonably requested, and to the books, records
and properties relating to the Company's and the Seller's business and
operations (including obtaining copies thereof upon reasonable notice). The
Purchaser will use its best efforts not to disrupt the Company's and the
Seller's operations or impinge unnecessarily upon the time of the Company's or
the Seller's employees.
Section 6.02 Conduct of Business in Normal Course. The Seller, the Company
and the Physician Stockholders covenant and agree, except as otherwise expressly
contemplated by this Agreement or as specifically consented to in writing by the
Purchaser, from and after the date of this Agreement and until the Effective
Time, to use their respective best efforts consistent with good business
judgment to maintain the Company's and the Seller's present business
organizations intact, keep available the services of its present employees,
preserve its present relationships with Persons having business dealings with
them and generally operate its business in the ordinary and regular course
consistent with its prior practices, maintain its books and records in
accordance with good business practice, on a basis consistent with prior
practice and in accordance with GAAP, and maintain all certificates, licenses
and permits necessary for the conduct of their respective businesses as
currently conducted. The Seller, the Company and the Physician Stockholders
covenant and agree that, except as otherwise expressly contemplated by this
Agreement or as specifically consented to in writing by the Purchaser, from and
after the date of this Agreement and until the Closing Date, neither the Seller,
the Company nor the Physician Stockholders shall undertake or permit the
following to occur with respect to either the Seller or the Company, any:
(a) action or omission which would result in a material adverse
change, whether direct or indirect, in the business, operations, condition
(financial or otherwise), prospects, liabilities or assets, whether or not
insured;
38
(b) transaction not in the ordinary course of business, including
without limitation any sale of all or substantially all of the assets (or any
merger, consolidation or other business combination with any other entity);
(c) material damage, destruction or loss, whether or not insured;
(d) individual unfulfilled commitment as of the date of this
Agreement requiring expenditures exceeding $10,000 in the aggregate (excluding
commitments expressly described elsewhere in this Agreement or the Schedules
hereto);
(e) failure to maintain in full force and effect substantially the
same level and types of insurance coverage as in effect on September 30, 1998,
or any destruction, damage to, or loss of any asset (whether or not covered by
insurance) that materially and adversely affects the business, operations,
condition (financial or otherwise), prospects, liabilities or assets;
(f) material change in accounting principles, methods or practices,
investment practices, claims, payment and processing practices or policies
regarding intercompany transactions;
(g) material revaluation of any assets or material write down of the
value of any inventory;
(h) declaration, setting aside, or payment of a dividend or other
distribution in respect of Capital Stock, or any direct or indirect redemption,
purchase or other acquisition of any shares of Capital Stock;
(i) issuance or sale or agreement to issue or sell any Capital Stock
except for shares issued upon exercise of options and warrants currently
outstanding;
(j) amendment to Articles of Incorporation or By-laws;
(k) sale, assignment or transfer of any tangible or intangible
asset, including any rights to intellectual property, except in the ordinary
course of business;
(l) disposition of or lapse of any patent, trademark, tradename,
servicemark or copyright or any application for the foregoing, or disposition of
any technology, software or know-how, or any license, permit or authorization to
use any of the foregoing;
(m) mortgage, pledge or other encumbrance, including Liens and
security interests, of any tangible or intangible asset;
(n) discharge or satisfaction of any Lien or payment or cancellation
of any liability other than payment of current liabilities in the ordinary
course of business;
39
(o) entering into any agreement, whether written or oral, or
transaction to (i) waive, relinquish, terminate or forebear the enforcement of
any right (x) not in the ordinary course of business or (y) involving
consideration in excess of $10,000 (other than inventory acquisitions and
dispositions in the ordinary course of business) or (ii) for the sale or
acquisition or lease of any material assets;
(p) indebtedness incurred for borrowed money or any commitment to
borrow money, any capital expenditure or capital commitment requiring an
expenditure of monies in the future, any incurrence of a contingent liability or
any guaranty or commitment to guaranty the indebtedness of others entered into,
other than customary transactions in the ordinary course of business not in
excess of $10,000 in the aggregate;
(q) amendment, termination or revocation of (or notice of intent to
do so), or a failure in any material respect to perform obligations or the
occurrence of any default under, any material contract or agreement to which it
is, or as of September 30, 1998 was, a party or of any material license, permit
or franchise required for the continued operation of any business conducted by
it on September 30, 1998;
(r) increase or commitment to the increase of the salary or other
compensation payable or to become payable to any officers, directors or
employees, agent or independent contractors, the payment of any bonus to the
foregoing persons or entering into any employment, consulting or other service
agreements except in the ordinary course of business and consistent with past
practice and applicable policies and procedures;
(s) material agreement with any physician, insurance company,
managed care organization or other healthcare organization;
(t) agreement or understanding to take any of the actions described
above in this Section 6.02.
Section 6.03 Consent. Each of the parties hereto will use its best efforts
and shall fully cooperate with each other party to make promptly all
registrations, filings and applications, give all notices and obtain all
Consents.
Section 6.04 Further Assurances. Subject to the terms and conditions of
this Agreement, each of the parties hereto will use its best efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, all things
necessary, proper or advisable under applicable Law to consummate and make
effective the transactions contemplated pursuant to this Agreement and the other
Transaction Documents.
Section 6.05 No Solicitation. From the date hereof to the Effective Time,
the Seller, the Company and the Physician Stockholder agree that neither they
nor any of their respective directors, officers, employees, representatives,
agents or stockholders, will, directly or indirectly,
40
solicit or initiate any discussions or negotiations with, participate in any
negotiations with, provide any information to or otherwise cooperate in any
other way with, or facilitate or encourage any effort or attempt by, any Person
or other group, other than the Purchaser and its directors, officers, employees,
representatives and agents, concerning any merger, sale of substantial assets,
sale of shares of capital stock or similar transaction involving the Company or
the Seller. Each of the Company and the Seller will promptly advise the
Purchaser of any proposal or inquiry made to it or any of their respective
directors, officers, employees, representatives, agents or stockholders with
respect to any of the foregoing transactions.
Section 6.06 Notification of Certain Matters. Each party hereto agrees to
give prompt notice to the other of (i) the occurrence, or failure to occur, of
any event which occurrence or failure to occur would be likely to cause any of
its or his representations or warranties contained in this Agreement to be
untrue or inaccurate in any material respect at any time from the date hereof to
the Effective Time, and (ii) any material failure on its or his part to comply
with or satisfy any covenant, condition or agreement to be complied with or
satisfied by it hereunder; provided, however, that the delivery of or the
failure to deliver any notice pursuant to this Section 6.06 shall not limit or
otherwise affect the remedies available hereunder to the party receiving such
notice.
Section 6.07 Supplements to Schedules. Prior to the Effective Time, the
Seller, the Company and the Physician Stockholders will supplement or amend the
Schedules hereto with respect to any matter hereafter arising which, if existing
or occurring at the date of this Agreement, would have been required to be set
forth or described in such Schedules. No supplement or amendment of the
Schedules made pursuant to this Section shall be deemed to cure any breach of
any representation or warranty made in this Agreement unless the Purchaser
specifically agrees thereto in writing.
Section 6.08 Confidentiality.
(a) Except as otherwise provided in this Section 6.08, the
Purchaser, on the one hand, and the Seller, the Physician Stockholders and the
Company (the "Selling Group"), on the other hand, shall not disclose any
Confidential Information. Prior to the Effective Time, the Purchaser and the
Selling Group shall use the Confidential Information solely in connection with
its analysis and review of the transactions contemplated by this Agreement;
provided that upon and subsequent to the Effective Time all Confidential
Information provided to the Purchaser by the Selling Group shall become the
property of the Purchaser, and the Purchaser shall have no further obligations
pursuant to this Section 6.08. Subsequent to the Effective Time, the obligations
of the Selling Group under this Section 6.08 shall continue in effect and all
confidential information previously provided by the Selling Group to the
Purchaser will constitute Confidential Information which the Selling Group shall
keep confidential in accordance with the terms of this Section 6.08.
41
(b) The Purchaser and the Selling Group may disclose Confidential
Information to any of their respective directors, officers, employees, agents,
financing sources, and advisors (each a "Representative" and, collectively, the
"Representatives") who need to know such Confidential Information, for the
purpose of assisting such party in connection with the transactions contemplated
by this Agreement. The Purchaser and the Selling Group (the "Disclosing Party")
may disclose Confidential Information if required (upon the receipt of an
opinion of counsel) by legal process or by operation of applicable Law;
provided, however, that the Disclosing Party shall first promptly advise and
consult with the other party (the "Subject Party") and its counsel concerning
the information the Disclosing Party proposes to disclose. The Subject Party
shall have the right to seek an appropriate protective order or other remedy
concerning the Confidential Information that the Disclosing Party proposes to
disclose, and the Disclosing Party will cooperate with the Subject Party to
obtain such protective order. In the event that such protective order or other
remedy is not obtained by the Subject Party, the Disclosing Party will disclose
only that portion of the Confidential Information which, in the written opinion
of the Disclosing Party's counsel, the Disclosing Party is legally required to
disclose, and the Disclosing Party will use its best efforts to obtain
assurances that confidential treatment will be accorded to such information.
(c) In the event that the transactions contemplated hereby are not
consummated, all Confidential Information whether or not then in each parties'
possession, and any copies thereof, or notes or extracts therefrom shall be
returned to the other party, without retaining any copies thereof, and each
party shall destroy, as soon as practicable, all copies of any analyses,
studies, compilations or other documents prepared by it or any of its
Representatives to the extent that they contain, reflect or are generated from
any Confidential Information.
(d) Each party acknowledges and agrees that any breach by it of the
provisions of this Section 6.08 will cause the other party irreparable injury
and damage, for which it cannot be adequately compensated in damages. Each
party, therefore, expressly agrees that the other party shall be entitled to
seek injunctive relief and/or other equitable relief to prevent any anticipatory
breach or continuing breach of the provisions of this Section 6.08, or any part
thereof, and to secure their enforcement. Nothing herein shall be construed as a
waiver by a party of any right it may now have or hereafter acquire to monetary
damages by reason of any injury to its property, business or reputation or
otherwise arising out of any wrongful act or omission of a party under the
provisions of this Section 6.08.
Section 6.09 Independent Appraisal. The Seller and the Purchaser agree that
they will engage, and equally share the costs of, an independent appraisal firm
to advise each of them with respect to the fair value of the Common Stock
Consideration.
42
Section 6.10 Fees and Expenses.
(a) In the event that, from the date hereof to the Effective Time,
(i) the Purchaser is using its reasonable efforts in good faith to consummate
the transactions contemplated hereby (ii) no material adverse change in the
business or prospects, including but not limited to the financial or market
prospects, of the Purchaser shall have occurred since the date hereof, and (iii)
the transactions contemplated hereby are not consummated as a consequence of (A)
the Seller, the Physician Stockholders or the Company deciding not to proceed
with a transaction based substantially upon the same terms, conditions and
purchase price contemplated herein, (B) the Seller, the Physician Stockholders
or the Company breaching the provisions of this Agreement, or (C) the Seller,
the Physician Stockholders or the Company failing to use their reasonable
efforts in good faith to consummate the transactions contemplated hereby, each
of the Seller, the Physician Stockholders and the Company agree to reimburse the
Purchaser for its reasonable out of pocket expenses, including legal and
accounting fees, incurred relative to the transactions contemplated hereby;
provided, that the Seller, the Physician Stockholders and the Company's
aggregate reimbursement obligations, which shall be joint and several, shall not
exceed $150,000.
(b) In the event that, from the date hereof to the Effective Time,
(i) the Seller, the Physician Stockholders and the Company are using their
reasonable efforts in good faith to consummate the transactions contemplated
hereby and satisfy the conditions set forth in Section 8 herein, (ii) the
condition set forth in Section 8.14 herein has been satisfied, (iii) no material
adverse change in the business or prospects, including but not limited to the
financial or market prospects of the Company or the Seller shall have occurred
since the date hereof, and (iv) a transaction is not consummated as a
consequence of (A) the Purchaser deciding not to proceed with a transaction
based substantially upon the same terms, conditions and purchase price
contemplated herein, (B) the Purchaser breaching the provisions hereof, or (C)
the Purchaser failing to use its reasonable efforts in good faith to consummate
the transactions contemplated hereby, the Purchaser agrees to reimburse the
Company, the Seller and the Physician Stockholders for their reasonable out of
pocket expenses, including legal and accounting fees, incurred relative to the
transactions contemplated hereby; provided, that the Purchaser's aggregate
reimbursement obligations hereunder and in connection with the stock purchase
agreement between the Purchaser and Liberty shall not exceed $150,000.
Section 6.11 DVI Term Loan. The Company hereby acknowledges that it has
received the DVI Term Loan and that the Purchaser facilitated the Company's
efforts in obtaining the DVI Term Loan. The Seller and each Physician
Stockholder of the Practice (i) acknowledge that the DVI Term Loan is for their
benefit and (ii) agree that to the extent that the Purchaser (or any subsidiary
or affiliate of the Purchaser) is or becomes liable (whether contingently or
otherwise) in respect of any indebtedness or other liability or obligation of
either the Seller or the Company (the "Pre-Acquisition Liability") and the
transactions contemplated herein are not consummated on the terms set forth
herein, then the Seller and each Physician Stockholder hereby agrees, jointly
and severally, to indemnify, defend and hold the Purchaser, its subsidiaries and
affiliates
43
and their respective officers, directors, representatives and agents and any
successors and assigns thereto harmless from and against any and all claims,
damages, injuries, liabilities, costs and expenses, including, without
limitation, reasonable fees and disbursements of counsel incurred by the
Indemnitee in any action or proceeding between the Indemnitor and the Indemnitee
or between the Indemnitee and any third party or otherwise, arising out of or in
any way related to the Pre-Acquisition Liability.
The Seller and each Physician Stockholder acknowledge that the
foregoing indemnification is and shall at all times continue to be absolute,
irrevocable and unconditional in all respects, irrespective of the value,
genuineness, validity, regularity, or enforceability of the Pre-Acquisition
Liability or any other provision of this Agreement, and irrespective of any Law,
now or hereafter in effect in any jurisdiction affecting the Pre-Acquisition
Liability or this Agreement. The liability of the Seller and each Physician
Stockholder under the provisions of this Section 6.11 is not, and will not be,
subject to any reduction, limitation, impairment, termination, defense, offset,
counterclaim or recoupment whatsoever, whether by reason of any claim of any
character whatsoever (including, without limitation, any claim of waiver,
release, surrender, alteration, or compromise), or by reason of any liability at
any time of the Purchaser to the Seller, the Company or any Physician
Stockholder or otherwise, or arising from default, willful misconduct,
negligence or otherwise. The provisions of this Section 6.11 (and the
obligations of the Seller and the Physician Stockholders hereunder) shall at all
times be valid and enforceable, irrespective of any other agreement or
circumstance of any nature whatsoever which might otherwise constitute a
defense, and the obligations of this Section 6.11 shall survive any termination
of this Agreement.
Section 6.12 Proxy Statement. The Seller and the Company covenant and agree
(i) to promptly furnish (and be responsible for) all information, and take such
other actions, as may be requested by the Purchaser in connection with the
preparation and filing of the Proxy Statement so that the Proxy Statement, on
the date filed with the Commission and on the date first published, sent or
given to the Purchaser's stockholders, shall not contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, and (ii) to promptly
correct any information supplied to the Purchaser specifically for use in the
Proxy Statement if and to the extent that it shall have become false or
misleading in any material respect.
ARTICLE VII.
CONDITIONS TO EACH PARTY'S OBLIGATIONS
The respective obligations of each party hereunder are subject to the
satisfaction, at or before the Effective Time, of the conditions set forth
below.
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Section 7.01 Governmental Authorizations; Consents. The Seller, the
Physician Stockholders, the Company, the Purchaser and the Merger Sub shall have
obtained all Consents which are required for the consummation of the Merger and
the transactions contemplated under this Agreement.
Section 7.02 Absence of Litigation. There shall not have been issued and be
in effect any order of any court or tribunal of competent jurisdiction which (i)
prohibits or makes illegal the purchase by the Purchaser of the Stock, (ii)
would require the divestiture by the Purchaser of all or a material portion of
the Stock or the assets of the Purchaser as a result of the transactions
contemplated hereby or (iii) would impose limitations on the ability of the
Purchaser to effectively execute full rights of ownership of the Stock as a
result of the transaction contemplated hereby.
Section 7.03 No Injunction. At the Effective Time there shall be no
effective injunction, writ, preliminary restraining order or any order of any
nature issued by a court of competent jurisdiction directing that the
transactions provided for herein or any of them not be consummated as so
provided or imposing any conditions on the consummation of the transactions
contemplated hereby which the Purchaser deems unacceptable in its sole
discretion.
ARTICLE VIII.
CONDITIONS PRECEDENT TO THE PURCHASER'S
AND THE MERGER SUB'S OBLIGATIONS
The obligation of the Purchaser and the Merger Sub to effect the Merger is
subject to the satisfaction, at or prior to the Effective Time, of the
conditions set forth below. The benefit of these conditions are for the
Purchaser and the Merger Sub only and may be waived in writing by the Purchaser
and the Merger Sub at any time in their sole discretion.
Section 8.01 Accuracy of Representations and Warranties. The
representations and warranties of the Seller, the Company and the Physician
Stockholders shall be true and correct in all material respects as of the date
when made and as of Closing Date as though made at that time, and the Purchaser
shall have received certificates attesting thereto from the Seller, the Company
and the Physician Stockholders signed by a duly authorized officer of each of
the Company and the Seller, and each Physician Stockholder, respectively.
Section 8.02 Performance by the Seller, the Company and the Physician
Stockholders. The Seller, the Company and the Physician Stockholders shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement, including, without
limitation, the deliveries required under Section 3.02(b), and the Purchaser
shall have received certificates attesting thereto from the Seller, the Company
and the
45
Physician Stockholders signed by a duly authorized officer of each of the
Company and the Seller, and each Physician Stockholder, respectively.
Section 8.03 Investigations. No investigation of the Company by the
Purchaser nor any document delivered to the Purchaser as contemplated by this
Agreement, shall have revealed any facts or circumstances which, in the sole
judgement of the Purchaser, reflect in a material adverse way on the Company,
the Seller or the Stock.
Section 8.04 Casualty Losses; Material Change. Since September 30, 1998,
neither the Company nor the Seller shall have suffered (i) any material casualty
loss, (ii) any material business interruption, (iii) any material labor
difficulty or customer boycott or (iv) any material adverse change in its
business, operations, prospects or financial condition.
Section 8.05 Stock. The Stock shall be free and clear of Liens of any
nature whatsoever.
Section 8.06 Board of Directors. The Board of Directors and officers of the
Company shall have delivered resignations on or prior to the date hereof and
effective as of the Closing Date.
Section 8.07 Investment Representations. The Purchaser shall have received
investment representations satisfactory to the Purchaser from the Seller and
each Physician Stockholder and any other recipient of either the Common Stock
Consideration or the Preferred Stock, on or prior to the date hereof and
effective as of the Closing Date.
Section 8.08 CLIA. The Company shall have provided the Purchaser with
documentation, in form and substance acceptable to the Purchaser and as of a
date acceptable to the Purchaser, to the effect that the operations of the
Seller and the Company have complied with CLIA and all HCFA regulations.
Section 8.09 Employment Agreements. The Purchaser shall have entered into
an employment agreement with each of Xx. Xxxxxxx and Xx. Xxxxx, dated on or
prior to the date hereof and effective as of the Closing Date, on terms and
conditions which are satisfactory to the parties thereto. The Seller shall have
entered into an employment agreement, dated on or prior to the date hereof and
effective as of the Closing Date, on terms and conditions satisfactory to the
parties thereto and the Purchaser, by and between the Company and those
Physician Stockholders and those other physicians employed by or who provide
services to the Seller as shall be mutually agreed upon by the Purchaser and the
Seller.
Section 8.10 Leases. The Company shall have entered into five year leases
(with two renewal periods of five years each) or assumed the existing leases,
with respect to each of the facilities in which the operations of the Seller are
currently conducted, on terms and conditions satisfactory to the Purchaser.
46
Section 8.11 Agreements with Stockholders of the Seller The Seller shall
have entered into agreements with the holders of securities convertible into
Capital Stock of the Company, on terms satisfactory to the Purchaser, dated on
or prior to the date hereof and effective as of the Closing Date.
Section 8.12 Liberty HealthCare System, Inc. The Purchaser shall have
entered into an agreement with Liberty with respect to the sale, to be
consummated contemporaneously herewith, by Liberty to the Purchaser of its
interest in the Company, on terms satisfactory to the Purchaser.
Section 8.13 Financing. The Purchaser shall have obtained the financing
necessary to consummate the transactions contemplated hereby.
Section 8.14 Audited Financial Statements. The 1997 Company Financial
Statements, the 1996 Company Financial Statements, the 1997 Seller Financial
Statements and the 1996 Seller Financial Statements shall have been delivered to
the Purchaser and shall reflect that the Seller and the Company had aggregate
revenues of at least $7.9 million and $17.4 million, respectively, for fiscal
year 1997 and $8.1 million and $17.8 million, respectively, for fiscal 1996, and
a net loss of $6,000 and $1.48 million, respectively, for fiscal 1997 and
pre-tax profits of $149,000 and a net loss of $3,466,367, respectively, for
fiscal 1996, in each case, after deducting all business expenses including, but
not limited to, the annual compensation of Xx. Xxxxxxx and Xxxxx.
Section 8.15 Unaudited Financial Statements. The Interim 1998 Company
Financial Statements and the Interim 1998 Seller Financial Statements shall have
been delivered to the Purchaser.
Section 8.16 FIRPTA Certificate. The Seller shall deliver to the Purchaser
a certificate (the "FIRPTA Certificate") in a form substantially identical to
the form attached hereto as Exhibit 12.
Section 8.17 Consents. The Purchaser, the Seller and the Company shall have
obtained all necessary Consents including, without limitation, any regulatory,
stock exchange or corporate approvals (including, without limitation, any
necessary approvals of the Board of Directors and stockholders of the
Purchaser).
Section 8.18 Administrative Services Agreement. The Company and the Seller
shall have entered into the Administrative Service Agreement, dated on or prior
to the date hereof and effective as of the Closing Date.
[Section 8.19 IPA Agreement. The Seller and the IPA shall have entered into
the IPA Agreement, dated on or prior to the date hereof and effective as of the
Closing Date.]
47
Section 8.20 Compliance with Laws. Neither the Company nor the Seller shall
be in violation of any Laws, which violation may have a Material Adverse Effect.
Section 8.21 Opinions of Counsel. The Purchaser shall have received from
counsel to the Seller an opinion of counsel, dated as of the Closing Date and
addressed to the Purchaser, substantially in the form of Exhibit 11.
Section 8.22 Voting Agreement. The Seller and the Physician Stockholders
shall have entered into the Voting Agreement, dated on or prior to the date
hereof and effective as of the Closing Date.
ARTICLE IX.
CONDITIONS PRECEDENT TO THE SELLER'S OBLIGATIONS.
The obligation of the Seller to effect the Merger is subject to the
satisfaction, at or prior to the Effective Time, of the conditions set forth
below. The benefit of these conditions are for the Seller only and may be waived
by the Seller in writing at any time in its sole discretion.
Section 9.01 Accuracy of Representations and Warranties. The
representations and warranties of the Purchaser shall be true and correct in all
respects as of the date when made and as of the Closing Date, as though made at
that time, and the Seller shall have received a certificate attesting thereto
signed by a duly authorized officer of the Purchaser.
Section 9.02 Performance by Purchaser. The Purchaser shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement, including, without limitation, the
deliveries required under Section 3.02(a), and the Seller shall have received a
certificate from the Purchaser signed by a duly authorized officer of the
Purchaser to such effect.
Section 9.03 Board Representation. The Purchaser shall appoint Xx. Xxxxx
(or such other person designated by the Seller and reasonably acceptable to the
Purchaser) to the Board of Directors of the Purchaser, effective as of the
Closing Date.
Section 9.04 Liberty HealthCare System, Inc. The Purchaser shall have
entered into an agreement with Liberty with respect to the sale, to be
consummated contemporaneously herewith, by Liberty to the Purchaser of its
interest in the Company.
Section 9.05 Consents. The Purchaser, the Seller and the Company shall have
obtained all necessary Consents including, without limitation, any regulatory,
stock exchange or corporate approvals (including, without limitation, any
necessary approvals of the Board of Directors and stockholders of the
Purchaser).
48
Section 9.06 Compliance with Laws. Neither the Company nor the Seller shall
be in violation of any Laws, which violation may have a Material Adverse Effect.
Section 9.07 Consent of Seller Stockholders. The obligations of the Company
and the Seller are subject to the consent of the stockholders of the Seller,
which consent may be withheld in the sole and absolute discretion of the
stockholders.
ARTICLE X.
SURVIVAL OF REPRESENTATIONS, WARRANTIES,
COVENANTS AND AGREEMENTS.
Except as otherwise specifically provided for herein, the representations,
warranties, covenants and agreements of the Purchaser, the Merger Sub, the
Seller, the Physician Stockholders and the Company included or provided for
herein, or in other instruments or agreements delivered or to be delivered at or
prior to Closing in connection herewith, including the representations and
warranties of all Persons made in the certificates to be delivered to the
Purchaser pursuant hereto, and the obligation of the Purchaser and the Seller to
indemnify on account of a breach or violation thereof shall survive for a period
of thirty-six (36) months following the Closing Date; provided, however, that
(x) there shall be no limit on the survival of the indemnification obligations
of the Seller for breaches of the representations or warranties made by the
Seller and the Company as to the transfer of legal and valid title to the Stock
and to environmental matters and (y) the indemnification obligations of the
Seller for breaches of the representations or warranties made by the Seller and
the Company with respect to Taxes or Tax matters shall survive until the
expiration of the applicable statute of limitations. Similarly, the obligation
of the Seller to indemnify the Purchaser, the Merger Sub and (after the
Effective Time) the Company with respect to any liability of the Company not
expressly assumed hereunder by the Purchaser, shall survive until such liability
or claim is fully paid and discharged. Notwithstanding anything herein to the
contrary, if, prior to the expiration of any indemnification period, the
Purchaser, or the Seller, as the case may be, shall have been notified of a
claim for indemnity hereunder and such claim shall not have been finally
resolved before the expiration of such period, any representation, warranty,
covenant or agreement that is the basis for such claim shall continue to survive
and shall remain a basis for indemnity as to such claim until such claim is
finally resolved. All statements contained herein and in the other Transaction
Documents, including the Schedules, the Company's Financial Statements and the
Seller's Financial Statements shall be deemed representations and warranties for
all purposes of this Agreement. The respective representations and warranties of
the Seller, the Company, Physician Stockholders, the Purchaser and the Merger
Sub contained herein or in any other documents covered in the preceding sentence
shall not be deemed waived or otherwise affected by any investigation made by
any party hereto or any amendment or supplement to the schedules or exhibits
hereto occurring after the signing of this Agreement.
49
ARTICLE XI.
INDEMNIFICATION.
Section 11.0 General Indemnity.
(a) Subject to the limitations and other provisions of Article X and
this Article XI, the Seller and the Physician Stockholders agree to indemnify
and hold harmless the Purchaser, its respective Affiliates (including, after the
Effective Time, the Company) and the successors and assigns of all of them,
including Persons providing financing to the Purchaser in their capacity as
successors or assigns of the Purchaser, from, against and in respect of any and
all Losses resulting from, incurred in connection with or arising out of (i) any
breach or alleged breach of any representation, warranty, covenant or agreement
of the Seller, the Company or the Physician Stockholders contained herein or
made in the Transaction Documents and any actual or threatened action or
proceeding in connection with any breach or alleged breach, (ii) the conduct of
the conduct of the operations of the Company or the Seller on or prior to the
Effective Time, (iii) any liability for Taxes (x) of the Company, (y) incurred
by reason of the Company being severally liable (pursuant to Treasury Regulation
Section 1.1502-6, any analogous state, local, or foreign provision, or
otherwise), in whole or in part, for any Tax of any affiliated group (as defined
in Section 1504(a) of the Code or any analogous state, local or foreign
provision), with respect to which the Company or any predecessor thereof may be
or have been an includible corporation (as defined in Sections 1504(b) and (c)
of the Code or such analogous state, local or foreign provision) (an "Affiliated
Group"), (z) of any Person other than the Company for which the Company has
liability as a transferee or successor, by contract or otherwise; and (iv)
liabilities of the Company, the Seller or their respective subsidiaries and
related Liens not set forth on Schedule 4.15 or 4.25 or reflected in either the
Company's Financial Statements or the Seller's Financial Statements. The
indemnification obligations to be borne by a Physician Stockholder shall be
limited to his pro rata portion of such obligations based on his equity interest
in the Practice.
The Purchaser and the Merger Sub shall indemnify and hold
harmless the Physician Stockholders, the Seller, their Affiliates and their
successors and assigns from, against and in respect of any and all Losses
resulting from, incurred in connection with or arising out of any breach or
alleged breach of any representation, warranty, covenant or agreement of the
Purchaser and any actual or threatened action or proceeding in connection
therewith.
The party or parties being indemnified are referred to herein
as the "Indemnitee" and the indemnifying party is referred to herein as the
"Indemnitor".
(b) No claim for indemnification under Section 11.01(a) (other than
indemnification claims relating to Recoupment Claims payable to a Governmental
Authority) may be brought by the Purchaser unless and until the aggregate dollar
amount of all Losses sought by the Purchaser to be indemnified against under
such aforesaid Section equals or exceeds
50
$50,000, in which event the Purchaser may assert all such claims and the Seller
and the Physician Stockholders shall be responsible for, and shall hold the
Purchaser harmless from, any and all such Losses; provided, further, however,
that the maximum liability that the Seller and the Physician Stockholders may
have with respect to claims for indemnification under Section 11.01(a) will be
an amount equal to the Merger Consideration, other than with respect to matters
involving fraud, willful misconduct or bad faith. In determining the amount of
the Merger Consideration, the Common Stock Consideration shall be valued based
on the closing sales price of the Common Stock on The Nasdaq National Market on
the trading day immediately preceding the Closing Date and the Preferred Stock
shall be valued based on its liquidation preference.
(c) Any Losses payable by the Seller and the Physician Stockholders
to the Purchaser pursuant to Section 11.01(a) may be payable, in the sole
discretion of the payor, (i) in cash in immediately available funds, (ii) in
shares of Common Stock valued based on the closing sales price of the Common
Stock on The Nasdaq National Market on the trading day immediately preceding the
Closing Date or (iii) in Preferred Stock valued at its liquidation preference.
Notwithstanding the foregoing, any Losses payable by the Seller and the
Physician Stockholders to the Purchaser in respect of which the Purchaser made
or otherwise incurred a cash expenditure shall be paid in cash in immediately
available funds by the Seller and the Physician Stockholders.
Section 11.0 Indemnification Procedure.
(a) Any party who receives notice of a potential claim that may, in
the judgment of such party, result in a Loss shall use all reasonable efforts to
provide the parties hereto notice thereof, provided that failure or delay or
alleged delay in providing such notice shall not adversely affect such party's
right to indemnification hereunder except to the extent that the Indemnitor
demonstrates that the defense of such action has been prejudiced by the
Indemnitee's failure to give such notice. In the event that any party shall
incur or suffer any Losses in respect of which indemnification may be sought by
such party hereunder, the Indemnitee shall assert a claim for indemnification by
written notice ("Notice") to the Indemnitor stating the nature and basis of such
claim. In the case of Losses arising by reason of any third party claim, the
Notice shall be given within 30 days of the filing or other written assertion of
any such claim against the Indemnitee, but the failure of the Indemnitee to give
the Notice within such time period shall not relieve the Indemnitor of any
liability that the Indemnitor may have to the Indemnitee.
(b) In the case of third party claims for which indemnification is
sought, the Indemnitor shall have the option (i) to conduct any proceedings or
negotiations in connection therewith, (ii) to take all other steps to settle or
defend any such claim (provided that the Indemnitor shall not settle any such
claim without the consent of the Indemnitee which consent shall not be
unreasonably withheld) and (iii) to employ counsel to contest any such claim or
liability in the name of the Indemnitee or otherwise. In any event, the
Indemnitee shall be entitled to participate at its own expense and by its own
counsel in any proceedings relating to
51
any third party claim. The Indemnitor shall, within 20 days of receipt of the
Notice, notify the Indemnitee of its intention to assume the defense of such
claim. If (i) the Indemnitor shall decline to assume the defense of any such
claim, (ii) the Indemnitor shall fail to notify the Indemnitee within 20 days
after receipt of the Notice of the Indemnitor's election to defend such claim or
(iii) the Indemnitee shall have reasonably concluded that there may be defenses
available to it which are different from or in addition to those available to
the Indemnitor or a conflict exists between the Indemnitor and the Indemnitee
(in which case the Indemnitor shall not have the right to direct the defense of
such action on behalf of the Indemnitee), the Indemnitee shall defend against
such claim and the Indemnitee may settle such claim without the consent of the
Indemnitor, and Indemnitor may not challenge the reasonableness of any such
settlement. The expenses of all proceedings, contests or lawsuits in respect of
such claims shall be borne and paid by the Indemnitor, and the Indemnitor shall
pay the Indemnitee, in immediately available funds, as such Losses are incurred.
Regardless of which party shall assume the defense of the claim, the parties
agree to cooperate fully with one another in connection therewith. In the event
that any Losses incurred by the Indemnitee do not involve payment by the
Indemnitee of a third party claim, then the Indemnitor shall within ten (10)
days after agreement on the amount of Losses or the occurrence of a final
non-appealable determination of such amount pay to the Indemnitee, in
immediately available funds, the amount of such Losses. Anything in this Article
XI to the contrary notwithstanding, the Indemnitor shall not, without the
Indemnitee's prior written consent, settle or compromise any claim or consent to
entry of any judgment in respect thereof which imposes any future obligation on
the Indemnitee or which does not include, as an unconditional term thereof, the
giving by the claimant or plaintiff to the Indemnitee, a release from all
liability in respect of such claim.
(c) The remedies provided for in this Agreement shall not be
exclusive of any other rights or remedies available to one party against the
other, either at law or in equity.
ARTICLE XII.
TERMINATION.
Section 12.01 Right to Terminate. Notwithstanding anything to the contrary
set forth in this Agreement, this Agreement may be terminated and the Merger and
the transactions contemplated herein abandoned at any time prior to the
Effective Time:
(i) by mutual consent of the Purchaser, on the one hand,
and the Seller, on the other;
(ii) by the Purchaser or the Seller if the Closing shall not
have occurred by _________, 1999, provided, however,
that the right to terminate this Agreement under this
Section 12.01 shall not be available to any party whose
failure (and, in the case of the Seller,
52
the failure of the Company or any Physician Stockholder)
to fulfill any obligation under this Agreement has been
the cause of, or resulted in, the failure of the Closing
to occur on or before such date;
(iii) by the Purchaser or the Seller if a court of competent
jurisdiction shall have issued an order, decree or
ruling permanently restraining, enjoining or otherwise
prohibiting the transactions contemplated by this
Agreement, and such order, decree, ruling or other
action shall have become final and nonappealable;
(iv) by the Seller if the Purchaser or the Merger Sub (x)
breaches its representations and warranties in any
material respect, or (y) fails to comply in any material
respect with any of its covenants or agreements
contained herein; or
(v) by the Purchaser if the Seller, the Company or any
Physician Stockholder (x) breaches its representations
and warranties in any material respect, or (y) fails to
comply in any material respect with any of its covenants
or agreements contained herein.
Section 12.0 Obligations to Cease. In the event that this Agreement shall
be terminated pursuant to Section 12.01 hereof, all obligations of the parties
hereto under this Agreement shall terminate and there shall be no liability of
any party hereto to any other party except for (i) the obligations with respect
to confidentiality contained in Section 6.08 hereof (ii) the obligations with
respect to fees and expenses contained in Sections 6.09 and 6.10, (iii) the
obligations of the Seller and the Physician Stockholders with respect to the DVI
Term Loan contained in Section 6.11 and (v) the obligations with respect to
costs contained in Section 14.02 hereof.
ARTICLE XIII.
OBLIGATIONS AFTER THE CLOSING.
Section 13.0 Tax Returns.
(a) Tax Periods Ending on or Before the Closing Date. Seller shall
prepare or cause to be prepared and file or cause to be filed (at its expense)
all Tax Returns for the Company for all periods ending on or prior to the
Closing Date which are filed after the Closing Date (including income Tax
Returns with respect to periods for which a unitary or combined income Tax
Return of Seller will include the operations of the Company). Such Tax Returns
shall be prepared in a manner consistent with the Tax Returns (including amended
Tax Returns) of the Company filed on or prior to the Closing Date for prior
fiscal periods. Seller shall pay, or cause to be paid, all Taxes shown as due
(or required to be shown as due) on such Tax Returns.
53
(b) Tax Periods Beginning Before and Ending After the Closing Date.
The Purchaser shall prepare or cause to be prepared and file or cause to be
filed (at its expense) any Tax Returns of the Company for Tax periods which
begin before the Closing Date and end after the Closing Date. The Seller shall
pay to the Purchaser within fifteen days after the date on which Taxes are paid
with respect to such periods an amount equal to the Seller's portion of such
Taxes which relates to the portion of such Taxable period ending on the Closing
Date. For purposes of this Section 13.01, the Taxes which relate to the portion
of such Tax period ending on the Closing Date shall, to the extent practical, be
taken into account as though the relevant Tax period ended on the Closing Date
(and all income, gain, credits, deductions and losses shall be determined on
such basis). All determinations necessary to give effect to the foregoing
allocation shall be made in a manner consistent with prior practice of the
Taxpayers and their respective subsidiaries.
Section 13.0 Employees and Employee Benefits. The Seller shall use its best
efforts to make available to Purchaser all employees of the Company at the
Effective Time. The Purchaser shall have no obligations to hire or continue the
employment of any of the Company's employees. The Seller shall be solely
responsible for the satisfaction of all claims for benefits brought by or in
respect of any Person who was an employee of the Company immediately prior to
the Effective Time under any Plan or any government mandated benefits (worker's
compensation and unemployment compensation) or otherwise, which claims are based
on occurrences prior to the Effective Time, or as a result of the Merger and the
transactions contemplated herein, regardless of when notices of such claims were
filed. The Seller shall retain responsibility for and shall indemnify and hold
the Purchaser harmless with respect to all compensation payable, including with
respect to the benefits or other liabilities payable with respect to all Plans,
relating to employees of the Company or its subsidiaries who retired or
terminated employment prior to the Effective Time. The Seller shall have no
responsibility to provide benefits or government mandated benefits for claims
arising out of events that occurred after the Effective Time; provided, however,
the Seller shall remain liable for any claims arising out of events that
occurred prior to and at the Effective Time.
At the Effective Time, the Seller shall retain or assume all
liabilities of any kind or description (including, without limitation,
disability payments, workers compensation awards and health benefits) with
respect to any former employees (including, without limitation, retirees and
disabled Persons) as of the Effective Time.
Section 13.0 Tax Audits. Each party shall have the right, at its own
expense, to control any audit or determination by any authority, initiate any
claim for refund or amended return, and contest, resolve and defend against any
assessment, notice of deficiency, or other adjustment or proposed adjustment of
Taxes for any taxable period for which that party is charged with responsibility
for filing a Tax Return under this Agreement (collectively, "Tax Actions");
provided, however, that the Seller, on the one hand, or the Purchaser, on the
other, shall not have the right to agree to any assessment, deficiency,
settlement, or other adjustment or proposed adjustment of Taxes that would
adversely affect the interests of the other without such other
54
party's written consent, which consent shall not be unreasonably withheld, and,
provided, further, that Purchaser shall have the right, at the expense of
Seller, to assume Tax Actions in the event Seller shall fail to take Tax Actions
reasonably available to it. The Seller shall notify the Purchaser, and the
Purchaser shall notify the Seller, as the case may be, if any taxing authority
shall, upon audit or otherwise, propose in writing an adjustment to tax items
which could give rise to a claim against or by the Purchaser.
Section 13.0 Certain Contracts. The Seller hereby assigns to the Company,
and will cause each other Physician Employee to assign, the rights to payments
and other financial interests of Seller or such Physician Employee, as the case
may be, under those Contracts listed on Schedule 13.04.
Section 13.0 Further Assurances. Subject to the terms and conditions
hereof, the Seller agrees that after the Effective Time it will execute and
deliver such documents to the Purchaser as the Purchaser may reasonably request
in order to consummate the transactions contemplated hereby.
Section 13.0 Board Representation. The Purchaser agrees that for so long as
the Common Stock Consideration is, and continues to be, owned by the Seller,
together with the Physician Stockholders, and represents in excess of 30% of the
outstanding Capital Stock of the Purchaser, then the Purchaser will use its
reasonable efforts to cause its Board of Directors, subject to their fiduciary
obligations, to nominate one individual designated by the Seller to be nominated
for election to the Purchaser's Board of Directors. The Seller hereby agrees
that Xx. Xxxxx will be its nominee until he is unable to serve.
Section 13.0 Seller's Indebtedness to the Company. The Seller hereby agrees
to repay the net payable reflecting certain accrued expenses (the "Seller's
Payable") due from the Seller to the Company, the aggregate amount of which was
$________ as of _________ and $________ as of the Closing Date, on a monthly
basis, from any payments received by the Seller in respect of accounts
receivable which arose prior to the Closing Date. All amounts of the Seller's
Payable not previously paid out of such accounts receivable will be due and
payable on the third anniversary of the Closing Date pursuant to the Promissory
Note, a form of which is attached hereto as Exhibit 7, which also provides for
certain minimum payments to be received on the first and second anniversaries of
the Closing Date in the event that the payments out of such accounts receivable
do not reach certain thresholds and (b) the Seller's obligations with respect to
the Seller's Payable shall be secured by a first priority perfected security
interest in and to all of the accounts receivable of the Seller pursuant to the
Security Agreement, a form of which is attached hereto as Exhibit 8.
[Section 13. Line of Credit. The Purchaser hereby agrees to provide a line
of credit to the Seller (the "Line of Credit") of up to $1.5 million to assist
the Seller with respect to a potential shortfall in cash receipts during the
first year following the Closing Date; provided, however, that the Line of
Credit will be funded upon the terms and subject to the conditions set
55
forth in the Loan Agreement attached hereto as Exhibit 5, including without
limitation, that the Line of Credit will (a) bear interest at the Purchaser's
cost of funds, (b) be secured by a perfected security interest in and to all of
the assets of the Seller (subordinate only to the security interest of the
Purchaser pursuant to the Security Agreement) pursuant to the Line of Credit
Security Agreement, a form of which is attached hereto as Exhibit 4, (c) be
guaranteed by the Seller and the Physician Stockholders on the same terms and
conditions as the DVI Term Loan, as set forth in Section 6.11, and (d) be repaid
by the Seller and the Physician Stockholders within thirty-six (36) months after
the Line of Credit is funded (the "Term"), with quarterly interest payments of
$______ only during the first twelve months of the Term, and quarterly payments
of principal and interest of $_____ during the final twenty-four (24) months of
the Term.]
ARTICLE XIV.
MISCELLANEOUS.
Section 14.0 Publicity. From the date hereof to the Closing Date, each of
the Purchaser, the Merger Sub, the Seller, the Physician Stockholders and the
Company agrees not to issue any announcement, press release, public statement or
other information to the press or any third party with respect to the Agreement
or the transactions contemplated hereby without obtaining the prior written
approval of the other parties hereto (which approval shall not be unreasonably
withheld); provided, however, that nothing contained herein shall prevent any
party hereto, at any time, from furnishing any required information to any
Governmental Authority or from issuing any announcement, press release, public
statement or other information to the press or any third party with respect to
the Agreement or the transaction contemplated hereby if required by Law.
Section 14.0 Costs. Except as expressly provided herein, including but not
limited to Section 6.10, each of the Purchaser, the Merger Sub, the Seller, the
Physician Stockholders and the Company shall pay their own costs and expenses,
including any accounting fees, legal fees, brokerage fees, commissions or
finder's fees incurred by such party, in connection with the negotiation and
preparation of this Agreement and in closing and carrying out the transactions
contemplated by this Agreement.
Section 14.0 Headings. Subject headings are included for convenience only
and shall not affect the interpretation of any provisions of this Agreement.
Section 14.0 Notices. Any notice, demand, request, waiver, or other
communication under this Agreement shall be in writing and shall be deemed to
have been duly given on the date of service if personally served or sent by
telecopy, on the business day after notice is delivered to a courier or mailed
by express mail if sent by courier delivery service or express mail for next day
delivery and on the third day after mailing if mailed to the party to whom
notice is to be given, by first class mail, registered, return receipt
requested, postage prepaid and addressed as follows:
56
If to the Seller, to:
Pavonia Medical Associates, P.A.
000 Xxxxxxx Xxxxxx
Xxxxxx Xxxx, Xxx Xxxxxx 00000
Attn: Xxxxxxxx Xxxxx, M.D.
Fax:
with a copy to:
Xxxxxx, Xxxxxxxxxx & Xxxxxxxx, P.A.
00 Xxxxxxxx Xxxxxxxx
Xxxxxxx Xxxx, Xxx Xxxxxx 00000
Attn: Xxxxxxx X. Xxxxxx, Esq.
Fax: (000) 000-0000
If to the Purchaser, to:
c/o Healthcare Imaging Services, Inc.
000 Xxxxxx Xxxxx
Xxx Xxxx, Xxx Xxxxxx 00000
Attn: Xxxxxxx X. Xxxxxx, Esq.
Fax: (000) 000-0000
with a copy to:
Xxxxxxx Berlin Shereff Xxxxxxxx, LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxx X. Xxxxxxxxx, Esq.
Fax: (000) 000-0000
If to the Merger Sub, to:
HIS PPM Co.
c/o Healthcare Imaging Services, Inc.
000 Xxxxxx Xxxxx
Xxx Xxxx, Xxx Xxxxxx 00000
Attn: Xxxxxxx X. Xxxxxx, Esq.
Fax: (000) 000-0000
57
with a copy to:
Xxxxxxx Berlin Shereff Xxxxxxxx, LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxx X. Xxxxxxxxx, Esq.
Fax: (000) 000-0000
If to the Company, to:
Jersey Integrated Health Practice, Inc.
000 Xxxxxxx Xxxxxx
Xxxxxx Xxxx, Xxx Xxxxxx 00000
Attn: Xxxxxxxx X. Xxxxx, M.D.
Fax:
with a copy to:
Xxxxxx, Stadtmauer & Michaels, P.A.
00 Xxxxxxxx Xxxxxxxx
Xxxxxxx Xxxx, Xxx Xxxxxx 00000
Attn: Xxxxxxx X. Xxxxxx, Esq.
Fax: (000) 000-0000
If to the Physician Stockholders, to:
[
]
with a copy to:
[
]
Section 14.0 Assignment and Successors. Prior to the Effective Time,
neither the Purchaser, the Merger Sub, the Seller nor the Physician Stockholders
shall assign any rights or delegate any duties hereunder without the prior
written consent of the other. At or after the Effective Time, the Purchaser may
assign its rights under this Agreement to its lenders as security for its
obligations.
58
Section 14.0 Binding Effect. This Agreement shall be binding upon and inure
to the benefit of the successors and assigns of the parties.
Section 14.0 Governing Law; Forum; Process. This Agreement shall be
construed in accordance with, and governed by, the Laws of the State of New
Jersey as applied to contracts made and to be performed entirely in the State of
New Jersey without regard to principles of conflicts of Law. Each of the parties
hereto hereby irrevocably and unconditionally submits to the exclusive
jurisdiction of any court of the State of New Jersey or any federal court
sitting in the State of New York for purposes of any suit, action or other
proceeding arising out of this Agreement (and agrees not to commence any action,
suit or proceedings relating hereto except in such courts). Each of the parties
hereto agrees that service of any process, summons, notice or document by U.S.
registered mail at its address set forth herein shall be effective service of
process for any action, suit or proceeding brought against it in any such court.
Each of the parties hereto hereby irrevocably and unconditionally waives any
objection to the laying of venue of any action, suit or proceeding arising out
of this Agreement, which is brought by or against it, in the courts of the State
of New Jersey or any federal court sitting in the State of New Jersey and hereby
further irrevocably and unconditionally waives and agrees not to plead or claim
in any such court that any such action, suit or proceeding brought in any such
court has been brought in an inconvenient forum.
Section 14.0 Entire Agreement. This Agreement, including the Schedules
hereto, sets forth the entire understanding and agreement and supersedes any and
all other understandings, negotiations or agreements between the Seller, the
Company, the Physician Stockholders, the Purchaser and the Merger Sub relating
to the Merger and the transactions contemplated herein.
Section 14.0 Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, and all of which together shall
constitute a single agreement.
Section 14.1 Severability. In the event that any one or more of the
immaterial provisions contained in this Agreement shall for any reason be held
to be invalid, illegal or unenforceable, the same shall not affect any other
provision of this Agreement, but this Agreement shall be construed in a manner
which, as nearly as possible, reflects the original intent of the parties.
Section 14.1 No Prejudice. This Agreement has been jointly prepared by the
parties hereto and the terms hereof shall not be construed in favor of or
against any party on account of its participation in such preparation.
Section 14.1 Words in Singular and Plural Form. Words used in the singular
form in this Agreement shall be deemed to import the plural, and vice versa, as
the sense may require.
Section 14.1 Parties in Interest. Nothing expressed or implied in this
Agreement is intended or shall be construed to confer upon or give to any Person
other than the parties hereto
59
any rights or remedies under or by reason of this Agreement or any
transaction contemplated hereby.
Section 14.1 Amendment and Modification. This Agreement may be amended or
modified only by written agreement executed by all parties hereto.
Section 14.1 Waiver. At any time prior to the Effective Time, the Purchaser
on the one hand or the Seller on the other may (i) extend the time for the
performance of any of the obligations or other acts of the other, (ii) waive any
inaccuracies in the representations and warranties of the other contained herein
or in any document delivered pursuant hereto, and (iii) waive compliance with
any of the agreements or conditions of the other contained herein. Any agreement
on the part of a party hereto to any such extension or waiver shall be valid
only if set forth in an instrument in writing signed by the party granting such
waiver but such waiver or failure to insist upon strict compliance with such
obligation, covenant, agreement or condition shall not operate as a waiver of,
or estoppel with respect to, any subsequent or future failure.
Section 14.1 Knowledge. References herein to the Company's knowledge shall
include the knowledge and belief of the Seller and every officer of the Company,
and reference herein to the Seller's knowledge shall include the knowledge and
belief of the Physician Stockholders and every officer of the Seller, in each
case after due inquiry and consultation.
60
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date set forth above.
HEALTHCARE IMAGING SERVICES, INC.
By: /s/ Xxxxxxx X. Xxxxxx
Name: Xxxxxxx X. Xxxxxx
Title:Chairman of the Board, President and Chief
Executive Officer
HIS PPM CO.
By: /s/ Xxxxxxx X. Xxxxxx
Name: Xxxxxxx X. Xxxxxx
Title:Chief Executive Officer
PAVONIA MEDICAL ASSOCIATES, P.A.
By: /s/ Xxx Xxxxxxx, D.O.
Name: Xxx Xxxxxxx, D.O.
Title:Managing Director and Secretary-Treasurer
JERSEY INTEGRATED HEALTH PRACTICE, INC.
By: /s/ Xxxxxxxx X. Xxxxx, M.D.
Name: Xxxxxxxx X. Xxxxx, M.D.
Title:Chairman of the Board
61
PHYSICIAN STOCKHOLDERS OF PAVONIA:
---------------------------------------
Xxxxxxxx Xxxxx, M.D.
---------------------------------------
Xxxxx Xxxxx, M.D.
---------------------------------------
Xxx Xxxxxxx, D.O.
---------------------------------------
Xxxxx Xxxxxxx, M.D.
---------------------------------------
Xxxxxx Xxxxxxxxxxxx, M.D.
---------------------------------------
Xxxxxx Xxxxxxxxx, M.D.
---------------------------------------
Xxxxxxxx Xxxxxx, M.D.
---------------------------------------
Xxxxxx XxXxxxxx, M.D.
---------------------------------------
Xxxxxxx Del Piano, M.D.
---------------------------------------
Xxxxxxx Xxxxxxxxx, M.D.
---------------------------------------
May Abed, M.D.
---------------------------------------
Xxxx Xxxxxxxx, M.D.
62
