MERGER AGREEMENT
BY AND AMONG
SPECIALTY CARE NETWORK, INC.,
LIMA ORTHOPEDICS, INC.,
AND
XXXXX X. XXXXXXXXXX, M.D.
September 10, 1997
TABLE OF CONTENTS
Page
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1. Definitions...........................................................- 1 -
2. Basic Transaction.....................................................- 4 -
(a) The Merger..................................................- 4 -
(b) The Closing.................................................- 4 -
(c) Actions at the Closing......................................- 4 -
(d) Effect of Merger............................................- 4 -
(e) No Fractional Shares........................................- 5 -
3. Representations and Warranties of LOI and LOI Stockholder.............- 5 -
(a) Organization, Qualification, and Corporate Power............- 5 -
(b) LOI Stockholder Interests and Capitalization................- 5 -
(c) Authorization of Transaction................................- 5 -
(d) Noncontravention............................................- 5 -
(e) Subsidiaries and Investments................................- 6 -
(f) Financial Statement.........................................- 6 -
(g) Undisclosed Liabilities.....................................- 6 -
(h) Brokers' Fees...............................................- 6 -
(i) Material Contracts..........................................- 6 -
(j) Insurance; Malpractice......................................- 7 -
(k) No Changes Prior to Closing Date............................- 7 -
(l) Title; Condition............................................- 8 -
(m) Litigation..................................................- 8 -
(n) Permits and Licenses........................................- 8 -
(o) Tax Matters.................................................- 8 -
(p) Employee Benefit Plans......................................- 8 -
(q) Third-Party Relations.......................................- 9 -
(r) Compliance with Applicable Laws.............................- 9 -
(s) Employee Compensation......................................- 10 -
(t) Environmental Matters......................................- 10 -
(u) Healthcare Compliance......................................- 10 -
(v) Fraud and Abuse............................................- 11 -
(w) Practice Compliance........................................- 11 -
(x) Rates and Reimbursement Policies...........................- 11 -
(y) Accounts Receivable........................................- 11 -
(z) Guaranties.................................................- 11 -
(aa) Powers of Attorney........................................- 12 -
(bb) Tangible Assets...........................................- 12 -
(cc) SCN Share Ownership; Investment Intent....................- 12 -
(dd) Full Disclosure...........................................- 13 -
4. Representations and Warranties of SCN................................- 13 -
(a) Organization...............................................- 13 -
(b) Capitalization.............................................- 13 -
(c) Authorization of Transaction...............................- 13 -
(d) Noncontravention...........................................- 13 -
(e) Brokers' Fees..............................................- 13 -
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5. Covenants............................................................- 13 -
(a) General....................................................- 14 -
(b) Notices and Consents.......................................- 14 -
(c) Regulatory Matters and Approvals...........................- 14 -
(d) Operation of Business......................................- 14 -
(e) Further Acts and Assurances................................- 15 -
(f) Full Access................................................- 15 -
(g) Notice of Developments.....................................- 15 -
(h) Exclusivity................................................- 15 -
(i) Collection of Accounts Receivable..........................- 15 -
(j) Payment of Expenses........................................- 15 -
(k) Corporate Authorization....................................- 15 -
(l) Malpractice Insurance......................................- 15 -
(m) Distribution of Excluded Assets............................- 15 -
(n) Satisfaction of Indebtedness...............................- 16 -
(o) Conversion into Business Corporation.......................- 16 -
(p) Employee Benefit Plans.....................................- 16 -
(q) Securities Laws Compliance.................................- 16 -
(r) Filing Final Tax Returns/Payment of Applicable Taxes.......- 16 -
6. Conditions to Obligation to Close....................................- 16 -
(a) Conditions to Obligation of SCN............................- 16 -
(b) Conditions to Obligation of LOI............................- 17 -
7. Items to be Delivered at or Prior to Closing.........................- 17 -
(a) By the LOI Stockholder or LOI..............................- 17 -
(b) By SCN.....................................................- 18 -
8. Termination..........................................................- 18 -
(a) Termination of Agreement...................................- 18 -
(b) Effect of Termination......................................- 19 -
9. Indemnification......................................................- 19 -
(a) Indemnification by the LOI Stockholder.....................- 19 -
(b) Notice to the LOI Stockholder; Opportunity to Defend.......- 19 -
(c) General Indemnification by SCN.............................- 19 -
(d) Notice to SCN; Opportunity to Defend.......................- 19 -
(e) Right of Setoff............................................- 00 -
00. Xxxxxxxxxxxxx.......................................................- 00 -
(x) Xxxxxxxx...................................................- 00 -
(x) No Third-Party Beneficiaries...............................- 20 -
(c) Entire Agreement...........................................- 20 -
(d) Succession and Assignment..................................- 20 -
(e) Counterparts...............................................- 20 -
(f) Headings...................................................- 20 -
(g) Notices....................................................- 20 -
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(h) Governing Law..............................................- 21 -
(i) Amendments and Waivers.....................................- 21 -
(j) Severability...............................................- 21 -
(k) Expenses...................................................- 21 -
(l) Construction...............................................- 21 -
(n) Incorporation of Exhibits and Schedules....................- 22 -
iii
MERGER AGREEMENT
THIS MERGER AGREEMENT (this "Agreement") is entered into this the 10th day
of September, 1997, by and among SPECIALTY CARE NETWORK, INC., a Delaware
corporation ("SCN"), LIMA ORTHOPEDICS, INC., an Ohio professional corporation
("LOI") and XXXXX X. XXXXXXXXXX, M.D. (collectively, the "LOI Stockholder").
SCN, LOI and the LOI Stockholder are referred to collectively herein as the
"Parties".
W I T N E S S E T H:
WHEREAS, SCN and LOI have determined that it is desirable and in the best
interests of their respective corporations and stockholders that LOI merge with
and into SCN, with SCN as the surviving corporation, on the terms and subject to
the conditions set forth in this Agreement and the corresponding Agreement and
Plan of Merger in the form attached hereto as Exhibit 1 (the "Agreement and Plan
of Merger");
WHEREAS, SCN and LOI intend that the transaction contemplated by this
Agreement shall qualify as a tax-free reorganization under Section 368(a)(1)(A)
of the Internal Revenue Code of 1986, as amended (the "Code") and intend that
this Agreement along with the Agreement and Plan of Merger shall constitute a
"plan of reorganization" within the meaning of Section 368 of the Code;
WHEREAS, the Parties do not intend for this Agreement to be a binding
obligation of any Party unless and until the provisions of Section 6 are
satisfied or waived by the appropriate party; and
WHEREAS, the Parties desire to set forth in writing the terms and
conditions under which said transaction will be consummated.
NOW, THEREFORE, in consideration of the foregoing and of the
representations, warranties, covenants and agreements set forth herein, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged by the Parties, and in accordance with the applicable
provisions of the Delaware General Corporation Law and the Ohio General
Corporation Law, the parties hereby agree as follows:
1. Definitions.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Agreement" has the meaning set forth in the preface above.
"Agreement and Plan of Merger" has the meaning set forth in the first
recital above.
"Applicable Laws" has the meaning set forth in Section 3(r).
"Closing Date" has the meaning set forth in Section 2(b) below.
"Closing" has the meaning set forth in Section 2(b) below.
"Code" has the meaning set forth in the recitals above.
"Conversion Ratio" has the meaning set forth in Section 2(d)(v) below.
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"Delaware Certificate of Merger" shall have the meaning set forth in
Section 2(a) below.
"Delaware General Corporation Law" means the General Corporation Law of the
State of Delaware, as amended.
"Disclosure Schedule" has the meaning set forth in Section 3 below.
"Effective Time" has the meaning set forth in Section 2(d)(i) below.
"Employee Benefit Plans" has the meaning set forth in Section 3(p)(i)
below.
"Environmental Laws" means all federal, state, and local laws, rules,
regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and
charges thereunder and other governmental requirements relating to pollution,
control of chemicals, storage and handling of petroleum products, management of
waste (including biohazardous or biomedical waste), discharges of materials into
the environment, health, safety, natural resources, and the environment,
including laws relating to emissions, discharges, releases, or threatened
releases of pollutants, contaminants, or chemical, industrial, hazardous, or
toxic materials or wastes into ambient air, surface water, ground water, or
lands or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling of pollutants,
contaminants, or chemical, industrial, hazardous, or toxic materials or wastes.
"ERISA" has the meaning set forth in Section 3(p)(i) below.
"Excluded Assets" has the meaning set forth in Section 5(m) below.
"GAAP" means United States generally accepted accounting principles as in
effect from time to time.
"Hazardous Materials" has the meaning set forth in Section 3(t) below.
"IRS" means the Internal Revenue Service.
"Knowledge" means actual knowledge after reasonable investigation.
"LOI" has the meaning set forth in the preface above.
"LOI Share" means any share of the issued and outstanding common stock of
LOI at the date of this Agreement.
"LOI Stockholder" has the meaning set forth in the preface above.
"Medical Waste" includes, but is not limited to, pathological waste, blood,
sharps, wastes from surgery or autopsy, dialysis waste, including contaminated
disposable equipment and supplies, cultures and stock of infectious agents and
associated biological agents, contaminated animals, isolation wastes,
contaminated equipment, laboratory waste, various other biological waste and
discarded materials contaminated with or exposed to blood, excretion or
secretion from human beings or animals, and any substance, pollutant, material
or contaminant listed or regulated under the Medical Waste Tracking Act of 1988,
42 U.S.C. ss.6992, et seq.
"Medical Waste Law" means the Medical Waste Tracking Act of 1988, as
amended, the U.S. Public Vessel Medical Waste Anti-Dumping Act of 1988, 33
U.S.C.A. ss.2501, et seq., the Marine Protection, Research and Sanctuaries
Act of 1972, 33 U.S.C.A. ss.1401, et seq., the Occupational Safety and
Health Act, 29 U.S.C.A. ss.651, et seq., the United States Department of
Health and Human Services, National Institute for Occupational Self-Safety
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and Health Infectious Waste Disposal Guidelines, Publication No. 88-119, all
regulations and orders issued pursuant to any of the foregoing, and any other
federal, state, regional, county, municipal or other local laws, regulations and
ordinances insofar as they purport to regulate Medical Waste or impose
requirements relating to Medical Waste.
"Merger" has the meaning set forth in Section 2(a) below.
"Ohio Certificate of Merger" has the meaning set forth in Section 2(a)
below.
"Ohio General Corporation Law" means the General Corporation Law of the
State of Ohio , as amended.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice.
"Parties" has the meaning set forth in the preface above.
"PBGC" has the meaning set forth in Section 3(p)(ii) below.
"PCBs" has the meaning set forth in Section 3(t) below.
"Person" means an individual, a partnership, a limited liability company, a
corporation, an association, a joint stock company, a trust, a joint venture, an
unincorporated organization, or a governmental entity (or any department,
agency, or political subdivision thereof).
"Practice Assets" has the meaning set forth in Section 3(l) below.
"SCN Share" means any share of the common stock, $.001 par value per share,
of SCN.
"SCN" has the meaning set forth in the preface above.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance, charge
or other security interest other than (a) mechanic's, materialmen's, and similar
liens, (b) liens for taxes not yet due and payable or for taxes that the
taxpayer is contesting in good faith through appropriate proceedings, (c)
purchase money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.
"Service Agreement" shall mean that certain Service Agreement dated as of
the Closing Date by and among SCN, Orthopaedic Institute of Ohio, Inc., the LOI
Stockholder, and certain other individuals to be executed and delivered at the
Closing.
"Subsidiary" means any corporation with respect to which a specified Person
(or a Subsidiary thereof) owns a majority of the common stock or has the power
to vote or direct the voting of sufficient securities to elect a majority of the
directors.
"Surviving Corporation" has the meaning set forth in Section 2(a) below.
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2. Basic Transaction.
(a) The Merger. On and subject to the terms and conditions of this
Agreement, LOI will merge with and into SCN (the "Merger") at the Effective
Time. SCN shall enter into the Agreement and Plan of Merger upon adoption of the
Agreement and Plan of Merger by the Board of Directors of SCN and the
satisfaction or waiver of the conditions precedent to SCN's obligations set
forth in this Agreement. LOI shall enter into the Agreement and Plan of Merger
upon adoption of the Agreement and Plan of Merger by the Board of Directors of
LOI and the LOI Stockholder and the satisfaction or waiver of the conditions
precedent to LOI's obligation set forth in this Agreement. Upon all other
conditions herein being satisfied or waived in accordance with the terms of this
Agreement, a Certificate of Merger in substantially the form attached hereto as
Exhibit 2(a)(1) (the "Delaware Certificate of Merger") shall be executed and
filed with the Secretary of State of the State of Delaware and Certificate of
Merger in substantially the form attached hereto as Exhibit 2(a)(2) (the "Ohio
Certificate of Merger")shall be executed and filed with the Secretary of State
of the State of Ohio , together with all certificates or documents as may be
required to be filed under the laws of the State of Delaware and the State of
Ohio to effect the Merger. Thereafter, the separate corporate existence of LOI
shall cease and LOI shall be merged with and into SCN (the "Surviving
Corporation").
(b) The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Xxxxx Xxxxxxxx, 000
Xxxxx Xxxxxxxxx Xxxxxx, Xxxxx 000, Xxxx, Xxxx, 00000 commencing at 9:00 A.M.
local time on the second business day following the day on which the last of the
conditions set forth in Section 6 have been fulfilled or waived, or such other
date or place as the Parties may mutually determine (the "Closing Date"). Time
is of the essence for this Agreement.
(c) Actions at the Closing. At the Closing, (i) LOI will deliver to SCN the
various certificates, instruments, and documents referred to in Section 7(a)
below, (ii) SCN will deliver to LOI the various certificates, instruments, and
documents referred to in Section 7(b) below, (iii) SCN and LOI will file with
the Secretary of State of the State of Delaware the Delaware Certificate of
Merger, and (iv) SCN and LOI will file with the Secretary of State of the State
of Ohio the Ohio Certificate of Merger.
(d) Effect of Merger.
(i) General. The Merger shall become effective at the time (the
"Effective Time") SCN and LOI file the Delaware Certificate of Merger with
the Secretary of State of the State of Delaware and file the Ohio
Certificate of Merger with the Secretary of State of the State of Ohio .
The Merger shall have the effect set forth in the Delaware General
Corporation Law and the Ohio Ohio General Corporation Law. The Surviving
Corporation may, at any time after the Effective Time, take any action
(including executing and delivering any document) in the name and on behalf
of either SCN or LOI in order to carry out and effectuate the transactions
contemplated by this Agreement.
(ii) Certificate of Incorporation. The Certificate of Incorporation of
SCN in effect at and as of the Effective Time will remain the Certificate
of Incorporation of the Surviving Corporation without any modification or
amendment as a result of the Merger.
(iii) Bylaws. The Bylaws of SCN in effect at and as of the Effective
Time will remain the Bylaws of the Surviving Corporation without any
modification or amendment as a result of the Merger.
(iv) Directors and Officers. The directors and officers of SCN in
office at and as of the Effective Time will remain the directors and
officers of the Surviving Corporation (retaining their respective positions
and terms of office).
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(v) Conversion of LOI Shares. At and as of the Effective Time, each of
the issued and outstanding LOI Shares shall be converted into (A) the right
to receive seven hundred seventy six and 70/100 (776.70) SCN Shares (the
ratio of seventy-seven thousand six hundred seventy SCN Shares divided by
the total number of LOI Shares outstanding is referred to herein as the
"Conversion Ratio") and (B) the right to receive a cash payment of Two
Thousand Five Hundred Forty-Nine and 62/100 Dollars ($2,549.62). The
Conversion Ratio shall be subject to equitable adjustment in the event of
any stock split, stock dividend, reverse stock split, or other change in
the number of LOI Shares or SCN Shares outstanding.
(vi) SCN Shares. Each SCN Share issued and outstanding at and as of
the Effective Time will remain issued and outstanding and shall be
unaffected by the Merger.
(e) No Fractional Shares. No fractional SCN Shares shall be issued pursuant
to the Merger. In lieu of the issuance of any such fractional SCN Shares, cash
adjustments will be paid to holders in respect of any fractional SCN Shares that
would otherwise be issuable. The amount of such adjustment shall be the product
of such fraction of a SCN Share multiplied by $12.875.
3. Representations and Warranties of LOI and LOI Stockholder. LOI and the
LOI Stockholder, represent and warrant to SCN that the statements contained in
this Section 3 are correct and complete as of the date of this Agreement and
will be correct and complete as of the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this Agreement
throughout this Section 3), except as set forth in the disclosure schedule
(the "Disclosure Schedule"). The Disclosure Schedule will be arranged in
paragraphs corresponding to the lettered and numbered paragraphs contained in
this Section 3.
(a) Organization, Qualification, and Corporate Power. LOI is a professional
corporation duly organized, validly existing, and in good standing under the
laws of the State of Ohio. LOI is duly authorized to conduct business and is in
good standing under the laws of each jurisdiction in which the character or
location of the properties owned or the business conducted by LOI makes such
qualification necessary. LOI has the full corporate power and authority to carry
on the business in which it is engaged and to own and use the properties owned
and used by it.
(b) LOI Stockholder Interests and Capitalization. The capital stock of LOI
is owned in the manner set forth in Section 3(b) of the Disclosure Schedule. All
of the issued and outstanding LOI Shares have been duly authorized and are
validly issued, fully paid, and nonassessable. There are no outstanding or
authorized options, warrants, purchase rights, subscription rights, conversion
rights, exchange rights or other contracts or commitments that could require LOI
to issue, sell or otherwise cause to become outstanding any of its capital
stock. There are no outstanding or authorized stock appreciation, phantom stock,
profit participation, or similar rights with respect to LOI. As of the date of
this Agreement, the authorized capital stock of LOI consists of five hundred
(500) shares of LOI common stock, of which one hundred (100) shares were issued
and outstanding.
(c) Authorization of Transaction. LOI has the full corporate power and
authority to execute and deliver this Agreement and to perform its obligations
hereunder. This Agreement constitutes the valid and legally binding obligation
of LOI and the LOI Stockholder, enforceable in accordance with its terms and
conditions.
(d) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge or other restriction of any government,
governmental agency, professional regulatory organization or court to which LOI
is subject or any provision of the charter or bylaws of LOI or (ii) conflict
with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, modify,
or cancel, or require any notice under any agreement, contract, lease, license,
instrument or other arrangement to which LOI is a party or by which it is bound
or to which any of its assets is subject (or result in the imposition of any
Security Interest upon any of its assets). LOI is not required to give any
notice to, make any filing
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with, or obtain any authorization, consent, or approval of any government or
governmental agency in order for the Parties to consummate the transactions
contemplated by this Agreement.
(e) Subsidiaries and Investments. LOI does not own, directly or indirectly,
any capital stock or other equity ownership or proprietary interest in any other
corporation, partnership, association, limited liability company, trust, joint
venture or other entity.
(f) Financial Statements. LOI has furnished SCN with unaudited balance
sheets dated December 31, 1995 and 1996 and July 31, 1997 and unaudited income
statements for the twelve (12) month periods ending December 31, 1996, 1995 and
1994 and the seven (7) months ended July 31, 1997. Such financial statements,
including the notes thereto, except as indicated therein, were prepared on a
basis consistent with past accounting practices of LOI and fairly present the
results of operations for the periods noted therein. The balance sheets of LOI
delivered by LOI to SCN fairly present the financial condition of LOI at the
date thereof, and except as indicated therein, reflect all claims against and
all debts and liabilities of LOI, fixed or contingent, as of the date thereof.
(g) Undisclosed Liabilities. LOI has no uninsured liability (whether known
or unknown, asserted or unasserted, absolute or contingent, accrued or
unaccrued, liquidated or unliquidated, and whether due or to become due),
including any liability for taxes, except for (i) liabilities set forth on the
face of the balance sheet dated as of December 31, 1996 and (ii) liabilities
which have arisen after December 31, 1996 in the Ordinary Course of Business
(none of which results from, arises out of, relates to, is in the nature of, or
was caused by any breach of contract, breach of warranty, tort, infringement, or
violation of law).
(h) Brokers' Fees. LOI does not have any liability or obligation to pay any
fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement.
(i) Material Contracts. Section 3(i) of the Disclosure Schedule lists the
following contracts and other material agreements to which LOI is a party:
(i) any agreement (or group of related agreements) for the lease of
real or personal property to or from any Person;
(ii) any agreement (or group of related agreements) for the purchase
or sale of supplies, products, or other personal property or for the
furnishing or receipt of services;
(iii) any agreement concerning a partnership, limited liability
company or joint venture;
(iv) any agreement (or group of related agreements) under which LOI
has created, incurred, assumed, or guaranteed any indebtedness for borrowed
money, or any capitalized lease obligation pursuant to which it has imposed
a Security Interest in respect of any of its assets, tangible or
intangible;
(v) any agreement concerning confidentiality or noncompetition;
(vi) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other plan or
arrangement for the benefit of LOI's current or former directors, officers,
and employees;
(vii) any agreement for the employment of any individual on a
full-time, part-time, consulting, or other basis providing annual
compensation in excess of $25,000 or providing severance benefits;
- 6 -
(viii) any agreement pursuant to which LOI has advanced or loaned any
amount to any of its directors, officers, and employees;
(ix) any agreement pursuant to which the consequences of a default or
termination could have a material adverse effect on the business, financial
condition, operations, results of operations, or future prospects of LOI;
or
(x) any other agreement (or group of related agreements) outside the
ordinary course of LOI's business or operations the performance of which
involves consideration in excess of $15,000.
LOI has delivered or given SCN access to a correct and complete copy of each
written agreement listed in Section 3(i) of the Disclosure Schedule (as amended
through the Closing Date) and a written summary setting forth the terms and
conditions of each oral agreement referred to in Section 3(i) of the Disclosure
Schedule. With respect to each such agreement: (A) the agreement is legal,
valid, binding, enforceable, and in full force and effect; (B) except as set
forth in Section 3(i) of the Disclosure Schedule, no notice of this Agreement or
consent of any third party is required in order for LOI to execute and deliver
this Agreement or to consummate the transactions contemplated hereby, and, after
assignment to SCN at Closing, the agreement will continue to be legal, valid,
binding, enforceable, and in full force and effect on identical terms; (C) no
party is in breach or default, and no event has occurred which with notice or
lapse of time would constitute a breach or default, or permit termination,
modification, or acceleration, under the agreement; and (D) no party has
repudiated any provision of the agreement.
(j) Insurance; Malpractice. Section 3(j) of the Disclosure Schedule
contains a list and brief description of all policies or binders of fire,
liability, workers compensation, health and other forms of insurance policies or
binders currently in force insuring against risks which will remain in full
force and effect at least through the Closing Date. Section 3(j) of the
Disclosure Schedule contains a description of all current malpractice liability
insurance policies of LOI Stockholder, LOI and LOI's professional employees and
all predecessor policies in effect since February 1, 1990. Neither LOI, the LOI
Stockholder, nor LOI's professional employees have, in the last seven (7) years,
filed a written application for any insurance coverage relating to LOI's
business or property which has been denied by an insurance agency or carrier.
LOI, LOI's professional employees and the LOI Stockholder have been continuously
insured for professional malpractice claims during the same period. Section 3(j)
of the Disclosure Schedule also sets forth a list of all claims for any insured
loss in excess of Five Thousand Dollars ($5,000.00) per occurrence filed by or
against LOI, LOI's professionalemployees or the LOI Stockholder during the three
(3) year period immediately preceding the date hereof, including workers
compensation, general liability, environmental liability and professional
malpractice liability claims. None of LOI, LOI's professionalemployees or the
LOI Stockholder is in material default with respect to any provision contained
in any such policy and none of them has failed to give any notice or present any
claim under any such policy in due and timely fashion.
(k) No Changes Prior to Closing Date. During the period from December 31,
1996 through the date hereof, LOI has not (i) incurred any liability or
obligation of any nature (whether known or unknown, asserted or unasserted,
absolute or contingent, accrued or unaccrued, liquidated or unliquidated and
whether due or to become due), except in the Ordinary Course of Business, (ii)
written off as uncollectible any notes or accounts receivable, except write-offs
in the Ordinary Course of Business charged to applicable reserves, none of which
individually or in the aggregate is material to LOI, (iii) conducted its
business in such a manner so as to materially increase its accounts payable or
so as to materially decrease its accounts receivable, (iv) granted any increase
in the rate of wages, salaries, bonuses, or other remunerations of any employee,
except in the Ordinary Course of Business, (v) canceled or waived any claims or
rights of substantial value, (vi) made any change in any method of accounting,
(vii) otherwise conducted its business or entered into any transaction, except
in the usual and ordinary manner and in the Ordinary Course of Business, (viii)
agreed, whether or not in writing, to do any of the foregoing, or (ix) disposed
of its assets other than in the Ordinary Course of Business.
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(l) Title; Condition. Section 3(l) of the Disclosure Schedule contains a
complete, true and correct list of those assets which are material to the
business or operations of LOI (the "Practice Assets"). LOI has good and
marketable title to all of the Practice Assets subject to no mortgage, pledge,
lien, lease, conditional sales agreement, option, right of first refusal or any
other encumbrance or charge, including taxes. LOI agrees to remove all security
interests reflected on any search of public records, if any, prior to the
Effective Time and remove any other security interest filed with respect to the
Practice Assets between the date of such search of public records and the
Effective Time.
(m) Litigation. There is no suit, action, proceeding at law or in equity,
arbitration, administrative proceeding or other proceeding or investigation by
any governmental entity pending, or threatened against, or affecting LOI or any
of the Practice Assets, or any physician or other health care professional
engaged or employed by LOI, and to the best Knowledge of the LOI Stockholder
there is no basis for any of the foregoing. None of the actions, suits,
proceedings, hearings, and investigations set forth in Section 3(m) of the
Disclosure Schedule could result in any material adverse change in the
operations, results of operations, or future prospects of the business assets to
be operated by SCN after the Closing.
(n) Permits and Licenses. LOI and all physicians and other health care
professionals engaged or employed by LOI have all permits and licenses required
by all applicable laws; have made all regulatory filings necessary for the
conduct of LOI's business; and are not in violation of any of said permitting or
licensing requirements.
(o) Tax Matters. All federal, state and other tax returns of LOI required
by law to be filed have been timely filed, and LOI has paid or adequately
provided for all taxes (including taxes on properties, income, franchises,
licenses, sales and payrolls) which have become due pursuant to such returns or
pursuant to any assessment, except for any taxes and assessments, the amount,
applicability or validity of which is currently being contested in good faith by
appropriate proceedings and with respect to which LOI has set aside on its books
adequate reserves. There are no tax liens on any of LOI's assets except those
with respect to taxes not yet due and payable. There are no pending tax
examinations of LOI's tax returns nor has LOI received a revenue agent's report
asserting a tax deficiency in the last twelve (12) months. There are not and
will not be at the Closing Date up to and through the Effective Time, any claims
pending or asserted against LOI for unpaid taxes by any federal, state or other
governmental body. LOI has withheld from each payment made to employees of LOI
the amount of all taxes (including, but not limited to, federal, state and local
income taxes and Federal Insurance Contribution Act taxes) required to be
withheld therefrom and all amounts customarily withheld therefrom, and has set
aside all other employee contributions or payments customarily set aside with
respect to such wages and has paid or will pay the same to, or has deposited or
will deposit such payment with, the proper tax receiving officers or other
appropriate authorities.
(p) Employee Benefit Plans.
(i) List of Plans. Section 3(p) of the Disclosure Schedule contains an
accurate and complete list of all employee benefit plans ("Employee Benefit
Plans") within the meaning of Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), whether or not any
Employee Benefit Plans are otherwise exempt from the provisions of ERISA,
established, maintained or contributed to by LOI (including all employers
(whether or not incorporated) which by reason of common control are treated
together with LOI and/or the LOI Stockholder as a single employer within
the meaning of Section 414 of the Code) since September 2, 1974.
(ii) Status of Plans. LOI has never maintained and does not now
maintain or contribute to any Employee Benefit Plan subject to ERISA which
is not in substantial compliance with ERISA, or which has incurred any
accumulated funding deficiency within the meaning of Section 412 or 418B of
the Code, or which has applied for or obtained a waiver from the Internal
Revenue Service of any minimum funding requirement under Section 412 of the
Code or which is subject to Title IV of ERISA. LOI has not incurred any
liability to the Pension Benefit Guaranty Corporation ("PBGC")
- 8 -
in connection with any Employee Benefit Plan covering any employees of LOI
or ceased operations at any facility or withdrawn from any such Plan in a
manner which could subject it to liability under Section 4062(f), 4063 or
4064 of ERISA, and knows of no facts or circumstances which might give rise
to any liability of LOI to the PBGC under Title IV of ERISA which could
reasonably be anticipated to result in any claims being made against LOI by
the PBGC. LOI has not incurred any withdrawal liability (including any
contingent or secondary withdrawal liability) within the meaning of
Sections 4201 and 4202 of ERISA, to any Employee Benefit Plan which is a
Multiemployer Plan (as defined in Section 4001 of ERISA), and no event has
occurred, and there exists no condition or set of circumstances, which
represent a material risk of the occurrence of any withdrawal from or the
partition, termination, reorganization or insolvency of any Multiemployer
Plan which would result in any liability of LOI.
(iii) Contributions. Full payment has been made of all amounts which
LOI is required, under applicable law or under any Employee Benefit Plan or
any agreement relating to any Employee Benefit Plan to which LOI is a
party, to have paid as contributions thereto as of the last day of the most
recent plan year of such Employee Benefit Plan ended prior to the date
hereof. LOI has made adequate provision for reserves to meet contributions
that have not been made because they are not yet due under the terms of any
Employee Benefit Plan or related agreements. Benefits under all Employee
Benefit Plans are as represented and have not been increased subsequent to
the date as of which documents have been provided.
(iv) Tax Qualification. Each Employee Benefit Plan intended to be
qualified under Section 401(a) of the Code has been determined to be so
qualified by the Internal Revenue Service and nothing has occurred since
the date of the last such determination which resulted or is likely to
result in the revocation of such determination.
(v) Transactions. LOI has not engaged in any transaction with respect
to the Employee Benefit Plans which would subject it to a material tax,
penalty or liability for prohibited transactions under ERISA or the Code
nor have any of its directors, officers or employees to the extent they or
any of them are fiduciaries with respect to such plans, breached any of
their responsibilities or obligations imposed upon fiduciaries under Title
I of ERISA which would result in any material claim being made under or by
or on behalf of any such plans by any party with standing to make such
claim.
(vi) Other Plans. LOI presently does not maintain any Employee Benefit
Plans or any other foreign pension, welfare or retirement benefit plans
other than those listed on Section 3(p) of the Disclosure Schedule.
(vii) Documents. LOI has delivered or caused to be delivered to SCN
true and complete copies of (i) all Employee Benefit Plans as in effect,
together with all amendments thereto which will become effective at a later
date, as well as the latest IRS determination letter obtained with respect
to any such Employee Benefit Plan qualified under Section 401 or 501 of the
Code, and (ii) the most recently filed Form 5500 for each Employee Benefit
Plan required to file such form.
(q) Third-Party Relations. LOI has not received any notice that any
material patient, supplier, employee or associated physician intends to cease
doing business with LOI.
(r) Compliance with Applicable Laws. LOI has operated in compliance with
all federal, state, county and municipal laws, constitutions, ordinances,
statutes, rules, regulations and orders applicable thereto ("Applicable Laws").
No item disclosed in Section 3(r) of the Disclosure Schedule could have a
material effect on SCN. Neither LOI nor any physician associated with or
employed by LOI has received payment or any remuneration whatsoever to induce or
- 9 -
encourage the referral of patients or the purchase of goods and/or services as
prohibited under 42 U.S.C. ss.1320a-7b(b), or otherwise perpetrated any
Medicare or Medicaid fraud or abuse nor has any fraud or abuse been alleged
within the last five (5) years by any government agency.
(s) Employee Compensation. LOI has paid or discharged or will pay or
discharge or assume all liabilities for compensation and benefits to which all
employees, including physician employees, are entitled through the Closing Date,
including but not limited to all salaries, wages, bonuses, incentive
compensation, payroll taxes, hospitalization and medical expenses, deferred
compensation, and vacation and sick pay, as well as any severance pay becoming
due as a result of the termination of LOI's employees.
(t) Environmental Matters.
(i) LOI is in full compliance with all applicable Environmental Laws.
(ii) LOI has not authorized or conducted the disposal or release, or
other handling of any hazardous substance, Medical Waste, hazardous waste,
hazardous material, hazardous constituent, toxic substance, pollutant,
contaminant, asbestos, radon, polychlorinated biphenyls ("PCBs"), petroleum
product or waste (including crude oil or any fraction thereof), natural
gas, liquefied gas, synthetic gas, biohazardous or biomedical material, or
other material defined, regulated controlled or potentially subject to any
remediation requirement under any Environmental Law (collectively
"Hazardous Materials"), on, in, under or affecting any property owned or
leased by LOI.
(iii) LOI has, and is in compliance with, all licenses, permits,
registrations, and government authorizations necessary to operate under all
applicable Environmental Laws. Section 3(t) of the Disclosure Schedule
lists all such licenses, permits, registrations and government
authorizations required by any Environmental Law.
(iv) LOI has not received any written or oral notice from any
governmental agency or entity or any other Person and there is no pending
or threatened claim, litigation or any administrative agency proceeding
that: (a) alleges a violation of any Environmental Law(s) by LOI or, with
respect to the Practice Assets or any property owned or leased by LOI (b)
alleges that LOI is a liable party or potentially responsible party under
the Comprehensive Environmental Response, Compensation and Liability Act,
42 U.S.C. ss.9601, et seq., or any analogous state law, (c) has resulted
or could result in the attachment of an environmental lien on any of the
Practice Assets or property owned or leased by LOI, or (d) alleges that LOI
is liable for any contamination of the environment, contamination of any
property owned or leased by LOI, damage to natural resources, property
damage, or personal injury based on its activities or the activities of any
predecessor or third parties involving Hazardous Materials, whether arising
under the Environmental Laws, common law principles, or other legal
standards.
(v) With respect to the generation, transportation, treatment, storage
and disposal or other handling of Medical Waste, LOI has complied with all
Medical Waste Laws.
(u) Healthcare Compliance. LOI is participating in or otherwise authorized
to receive reimbursement from Medicare and Medicaid and is a party to other
third-party payor agreements if any, discussed in Section 3(i) of the Disclosure
Schedule. All necessary certifications and contracts required for participation
in such programs are in full force and effect and have not been amended or
otherwise modified, rescinded, revoked or assigned, and no condition exists or
event has occurred which in itself or with the giving of notice or the lapse of
time or both would result in the suspension, revocation, impairment, forfeiture
or non-renewal of any such third-party payor program. LOI is in compliance in
all material respects with the requirements of all such third-party payors. LOI,
the LOI Stockholder, and LOI's physician employees do not have any financial
relationship (whether investment interest, compensation interest,
- 10 -
or otherwise) with any entity to which any of the foregoing refer patients,
except for such financial relationships that qualify for exceptions to state and
federal laws restricting physician referrals to entities in which they have a
financial interest.
(v) Fraud and Abuse. LOI, the LOI Stockholder and persons and entities
providing professional services for LOI have not engaged in any activities which
are prohibited under 42 U.S.C. ss.1320a-7b, or the regulations promulgated
thereunder pursuant to such statutes, or related state or local statutes or
regulations, or which are prohibited by rules of professional conduct, including
the following: (a) knowingly and willfully making or causing to be made a false
statement or representation of a material fact in any application for any
benefit or payment; (b) knowingly and willfully making or causing to be made any
false statement or representation of a material fact for use in determining
rights to any benefit or payment; (c) failing to disclose knowledge by a
claimant of the occurrence of any event affecting the initial or continued right
to any benefit or payment on its own behalf or on behalf of another, with intent
to fraudulently secure such benefit or payment; or (d) knowingly and willfully
soliciting or receiving any remuneration (including any kickback, bribe, or
rebate), directly or indirectly, overtly or covertly, in cash or in kind or
offering to pay or receive such remuneration (1) in return for referring an
individual to a person for the furnishing or arranging for the furnishing or any
item or service for which payment may be made in whole or in part by Medicare or
Medicaid, or (2) 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.
(w) Practice Compliance. LOI is lawfully operated in accordance with the
requirements of all Applicable Laws and has all necessary authorizations for the
use and operation of a medical practice, all of which are in full force and
effect. There are no outstanding notices of deficiencies relating to LOI issued
by any governmental authority or third-party payor requiring conformity or
compliance with any applicable law or condition for participation with such
governmental authority or third-party payor, and after reasonable and
independent inquiry and due diligence and investigation, LOI has neither
received notice nor has any Knowledge or reason to believe that such necessary
authorizations may be revoked or not renewed in the Ordinary Course of Business.
(x) Rates and Reimbursement Policies. The jurisdiction in which LOI is
located does not currently impose any restrictions or limitations on rates which
may be charged to private pay patients receiving services provided by LOI. LOI
does not have any rate appeal currently pending before any governmental
authority or any administrator of any third-party payor program. To the best
Knowledge of the LOI Stockholder no Applicable Law which affects rates or
reimbursement procedures has been enacted, promulgated or issued within the
eighteen (18) months preceding the date of this Agreement and no such legal
requirement is proposed or currently pending in the jurisdiction in which LOI is
located, which could have a material adverse effect on LOI or may result in the
imposition of additional Medicaid, Medicare, charity, free care, welfare, or
other discounted or government assisted patients at LOI or require LOI to obtain
any necessary authorization which LOI does not currently possess.
(y) Accounts Receivable. All accounts receivable, unbilled invoices and
other debts due or recorded in the respective records and books of account of
LOI, as being due to LOI, (i) are valid, existing and to the best Knowledge of
the LOI Stockholder are collectible (ii) have arisen in the Ordinary Course of
Business, and (iii) none of such accounts receivable or other debts is or will
at the Closing Date be subject to any counterclaim or set-off except to the
extent of any such provision or reserve. There has been no material adverse
change since July 31, 1997, in the amount of accounts receivable or other debts
due LOI, the allowances with respect thereto, or accounts payable of LOI from
that reflected in the most recent balance sheet previously delivered by LOI to
SCN.
(z) Guaranties. LOI is not a guarantor and otherwise is not liable for any
liability or obligation (including indebtedness) of any other Person.
- 11 -
(aa) Powers of Attorney. There are no outstanding powers of attorney
executed by LOI, except as may be contained in financing documents or security
agreements listed in Section 3(i) of the Disclosure Schedule.
(bb) Tangible Assets. LOI owns or leases all land, buildings, machinery,
equipment, and other tangible assets necessary for the conduct of its business
as presently conducted. Each tangible asset is free from defects, has been
maintained in accordance with normal industry practice, and is in good operating
condition and repair (subject to normal wear and tear).
(cc) SCN Share Ownership; Investment Intent.
(i) Neither LOI nor the LOI Stockholder owns, beneficially or
otherwise, any SCN Shares.
(ii) SCN Shares issuable in the Merger are being acquired by the LOI
Stockholder solely for his own account for investment and not with a view
to the distribution thereof, and the LOI Stockholder acknowledges and
understands that the certificate(s) representing such SCN Shares will bear
a legend in substantially the following form:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR UNDER ANY STATE SECURITIES ACT AND CANNOT BE SOLD,
TRANSFERRED, OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER
SUCH ACTS OR UNLESS EXEMPTIONS FROM REGISTRATION ARE
AVAILABLE.
(iii) The LOI Stockholder represents and warrants as follows:
(A) The LOI Stockholder confirms that SCN has made available to
him or to his representatives the opportunity to ask questions of SCN
officers and directors and to acquire such information about the SCN
Shares and the business and financial condition of SCN as the LOI
Stockholder requested, which additional information has been received.
(B) In deciding to acquire SCN Shares pursuant to this Agreement,
the LOI Stockholder consulted with his legal, financial, and tax
advisors with respect to the Merger and the nature of the investment
together with any additional information provided under subsection (A)
above.
(C) The LOI Stockholder has adequate means of providing for his
current needs and personal contingencies and has no need for liquidity
in his investment in SCN. The LOI Stockholder, either alone or with
his representatives, has such knowledge and experience in financial
and business matters that he is capable of evaluating the merits and
risks of the Merger.
(D) The LOI Stockholder understands and acknowledges that the
investment in the SCN Shares is a speculative investment which
involves a high degree risk of loss of the LOI Stockholder's
investment therein; that there are substantial restrictions on the
transferability of the SCN Shares under the applicable provisions of
the Securities Act and the rules and regulations promulgated
thereunder and applicable state securities or "blue sky" laws.
(E) The LOI Stockholder has been advised and understands that (i)
the offer and sale of the SCN Shares have not been registered under
the Securities Act; (ii) the LOI Stockholder must bear the economic
risk of the investment in the SCN Shares until the offer or sale of
the SCN Shares is subsequently registered under the Securities Act or
any "blue sky" laws or an exemption from such
- 12 -
registration is available; (iii) Rule 144 promulgated under the
Securities Act is not presently available with respect to the sale of
any securities of SCN, including the SCN Shares, and when and if the
SCN Shares may be disposed of without registration in reliance of Rule
144, such disposition can be made only in accordance with the terms
and conditions of such Rule (a summary of which is attached hereto as
Exhibit 3 (cc)); (iv) the restrictive legends described in Section
3(cc)(ii) shall be placed on the certificates representing the SCN
Shares; and (v) a notation shall be made in the appropriate records of
SCN indicating that the SCN Shares are subject to restrictions on
transfer and appropriate stop-transfer instructions will be issued to
any transfer agent with respect to the SCN Shares.
(dd) Full Disclosure. No representation or warranty made by LOI in this
Agreement contains or will contain any untrue statement of a material fact or
omits or will omit to state a material fact necessary to make the statements
contained herein or therein not misleading.
4. Representations and Warranties of SCN. SCN represents and warrants to
LOI that the statements contained in this Section 4 are correct and complete as
of the date of this Agreement and will be correct and complete as of the Closing
Date (as though made then and as though the Closing Date were substituted for
the date of this Agreement throughout this Section 4).
(a) Organization. SCN is a corporation duly organized, validly existing,
and in good standing under the laws of the State of Delaware.
(b) Capitalization. As of the date of this Agreement, the entire authorized
capital stock of SCN consists of fifty million (50,000,000) SCN Shares and two
million (2,000,000) shares of preferred stock. All of the SCN Shares to be
issued in the Merger have been duly authorized and, upon consummation of the
Merger, will be validly issued, fully paid, and nonassessable.
(c) Authorization of Transaction. SCN has full power and authority
(including full corporate power and authority) to execute and deliver this
Agreement, to issue the SCN Shares and otherwise to perform its obligations
hereunder; provided, however, that SCN cannot consummate the transaction unless
and until the Merger receives the approval of the SCN Board of Directors. Except
as set forth in the preceding sentence, this Agreement constitutes the valid and
legally binding obligation of SCN, enforceable in accordance with its terms and
conditions.
(d) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge or other restriction of any government,
governmental agency, professional regulatory organization or court to which SCN
is subject or may become subject as a result of the transaction contemplated by
this Agreement, or any provision of the charter or bylaws of SCN or (ii)
conflict with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, modify,
or cancel, or require any notice under any agreement, contract, lease, license,
instrument or other arrangement to which SCN is a party or by which it is bound
or to which any of its assets is subject. Other than state and federal filings
required by the Securities Act and similar state statutes, SCN does not need to
give any notice to, make any filing with, or obtain any authorization, consent,
or approval of any government or governmental agency in order for the Parties to
consummate the transactions contemplated by this Agreement.
(e) Brokers' Fees. SCN does not have any liability or obligation to pay any
fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which SCN could become liable or
obligated.
5. Covenants. The Parties agree as follows with respect to the period from
and after the execution of this Agreement.
- 13 -
(a) General. Each of the Parties will use its or his best efforts to take
all action and to do all things necessary in order to consummate and make
effective the transactions contemplated by this Agreement (including
satisfaction of the closing conditions set forth in Section 6 below) to be
satisfied by him or it. This paragraph shall not be construed to obligate any of
the Parties to waive any condition precedent to his or its obligations to
perform hereunder.
(b) Notices and Consents. LOI will give any notices to third parties, and
will use its best efforts to obtain any third party consents necessary or
required to consummate the Merger or that SCN reasonably may request in
connection with the matters referred to in Section 3(i) above.
(c) Regulatory Matters and Approvals. Each of the Parties will give any
notices to, make any filings with, and use its reasonable best efforts to obtain
any necessary authorizations, consents, and approvals of governments and
governmental agencies in connection with the transactions contemplated by this
Agreement. Without limiting the generality of the foregoing:
(i) Tax Reporting. The Merger is intended to qualify as a
reorganization under Code Section 368(a)(1)(A). Each of the parties agrees
to report this transaction for all purposes in accordance with the
foregoing.
(ii) Licenses and Permits. Each of the Parties shall have obtained all
licenses and permits necessary to operate their respective businesses.
(d) Operation of Business. From the date of this Agreement through the
Closing Date, LOI will not engage in any practice, take any action, or enter
into any transaction outside the Ordinary Course of Business. Without limiting
the generality of the foregoing:
(i) LOI will not authorize or effect any change in its charter
documents or bylaws;
(ii) LOI will not grant any options, warrants, or other rights to
purchase or obtain any of its capital stock or issue, sell or otherwise
dispose of any of its capital stock (except upon the conversion or exercise
of options, warrants, and other rights currently outstanding);
(iii) LOI will not declare, set aside, or pay any dividend or
distribution with respect to its capital stock (whether in cash or in
kind), or redeem, repurchase, or otherwise acquire any of its capital stock
in either case outside the Ordinary Course of Business without the consent
of SCN, which consent shall not be unreasonably withheld;
(iv) LOI will not issue any note, bond or other debt security or
create, incur, assume or guarantee any indebtedness for borrowed money or
capitalized lease obligation outside the Ordinary Course of Business;
(v) LOI will not impose any Security Interest upon any of its assets
outside the Ordinary Course of Business;
(vi) LOI will not make any capital investment in, make any loan to, or
acquire the securities or assets of any other Person outside the Ordinary
Course of Business;
(vii) LOI will not make any change in employment terms for any of its
directors, officers or employees outside the Ordinary Course of Business;
and
(viii) LOI will not commit to do any of the foregoing.
- 14 -
(e) Further Acts and Assurances. LOI and the LOI Stockholder shall, at any
time and from time to time at and after the Effective Time, upon request of SCN,
take any and all steps necessary to place SCN in possession and operating
control of the Practice Assets and to effectuate the Merger, and will do,
execute, acknowledge and deliver, or will cause to be done, executed,
acknowledged and delivered, all such further acts, deeds, assignments,
transfers, conveyances, powers of attorney, and assurances as may be required
for better transferring and confirming to SCN or its successors and assigns, or
for better reducing to possession, any or all of the Practice Assets or
consummating the Merger.
(f) Full Access. Upon three (3) days prior notice, LOI will permit
representatives of SCN to have full access to all premises, properties,
personnel, books, records (including tax records), contracts, and documents of
or pertaining to LOI during normal business hours. SCN will treat and hold as
such any confidential information it receives from LOI in the course of the
reviews contemplated by this Section 5(e), will not use any of the confidential
information except in connection with this Agreement, and, if this Agreement is
terminated for any reason whatsoever, agrees to return to LOI all tangible
embodiments (and all copies) thereof which are in its possession.
(g) Notice of Developments. Each Party will give prompt written notice to
the other Parties of any material adverse development causing a breach of any of
its own representations and warranties in Section 3 or Section 4 above, as
applicable. No disclosure by any Party pursuant to this Section 5(f), however,
shall be deemed to amend or supplement the Disclosure Schedule or to prevent or
cure any misrepresentation, breach of warranty, or breach of covenant.
(h) Exclusivity. Until the earlier of (i) October 31, 1997, or (ii) the
Effective Time, LOI will not solicit, initiate, or encourage the submission of
any proposal or offer from any Person relating to the acquisition of all or
substantially all of the capital stock or assets of LOI (including any
acquisition structured as a merger, consolidation, or share exchange). LOI shall
notify SCN immediately if any Person makes any proposal, offer, inquiry, or
contact with respect to any of the foregoing.
(i) Collection of Accounts Receivable. The LOI Stockholder agrees to
cooperate with SCN in the collection of accounts receivable owned by LOI as of
the Effective Time acquired pursuant to this Agreement. SCN, at its option,
shall have the right to require the collection of said accounts receivable
through a lockbox or bank account sweep arrangement. In connection therewith,
the LOI Stockholder agrees to execute the necessary documents and follow the
necessary procedures as described in the Service Agreement to accommodate the
collection of the accounts receivable in such manner.
(j) Payment of Expenses. On or before the Effective Time, LOI shall have
paid or discharged any and all liabilities or charges for costs or fees owed as
a result of the transaction contemplated by this Agreement.
(k) Corporate Authorization. By execution of this Agreement, the LOI
Stockholder agrees to take any and all steps necessary and will do, execute,
acknowledge and deliver, or will cause to be done, executed, acknowledged and
delivered, all such acts, deeds and assurances required in order to consummate
the Merger, including voting as directors of LOI in favor of the Merger and
voting as stockholders of LOI in favor of the Merger at any meetings (or in any
action by written consent) required by the Ohio General Corporation Law.
(l) Malpractice Insurance. On or before the Effective Time, all physicians
and employees of LOI must be covered by medical malpractice insurance and, if
required by SCN, medical malpractice tail insurance to cover prior occurrences
shall be procured by LOI.
(m) Distribution of Excluded Assets. Prior to the Effective Time, LOI
shall have distributed to the LOI Stockholder all of the assets listed on
Schedule 5(m), which constitute the entirety of the assets owned by LOI not
being acquired by SCN (the "Excluded Assets").
- 15 -
(n) Satisfaction of Indebtedness. Prior to the Effective Time, LOI shall
have caused the payoff of all liabilities owed to third-parties and all
indebtedness owed to banks or other financial institutions or lenders or shall
have caused the assumption thereof by a new entity organized by the LOI
Stockholder. Notwithstanding any contrary provision contained herein, SCN shall
not be deemed to have assumed, nor shall SCN assume: (i) any liability which may
be incurred by reason of any breach of or default under such contracts, leases,
commitments or obligations which occurred prior to the Closing Date; (ii) any
liability for any employee benefits payable to employees of LOI, including, but
not limited to, liabilities arising under any Employee Benefit Plan or accrued
vacation or sick pay; (iii) any liability based upon or arising out of a
violation of any laws by LOI, including, without limiting the generality of the
foregoing, any such liability which may arise in connection with agreements,
contracts, commitments or provision of services by LOI; nor (iv) any liability
based upon or arising out of any tortious or wrongful actions of LOI or any
Physician Owner, or any liability for the payment of any taxes imposed by law on
LOI arising from or by reason of the transactions contemplated by this
Agreement. LOI shall establish a reserve for income, excise or other taxes owed
by LOI through the Effective Time, including but not limited to any such taxes
to be paid upon the collection of any cash basis accounts receivable existing on
the books of LOI at the Effective Time.
(o) Conversion into Business Corporation. If required by the Ohio General
Corporation Law, prior to the Effective Time, the LOI Stockholder shall have
caused the conversion of LOI to an Ohio business corporation.
(p) Employee Benefit Plans. Prior to the Effective Time, all Employee
Benefit Plans shall be terminated in accordance with Applicable Law or
Orthopaedic Institute of Ohio, Inc. shall have taken whatever actions are
necessary to become the sponsor or any such plans.
(q) Securities Laws Compliance. The LOI Stockholder shall not dispose of
the SCN Shares received as a result of the Merger except in accordance with the
provisions of the Securities Act, the provisions of any rule adopted by the
Securities and Exchange Commission pursuant to the Securities Act and the "blue
sky" laws of any applicable state.
(r) Filing Final Tax Returns/Payment of Applicable Taxes. The LOI
Stockholder shall cause to be filed all final tax returns for LOI and shall pay
any and all taxes owed or accrued up to and through the Effective Time.
6. Conditions to Obligation to Close.
(a) Conditions to Obligation of SCN. The obligation of SCN to consummate
the Merger is subject to satisfaction of the following conditions or before the
Closing Date:
(i) LOI shall have procured all of the third party consents specified
in Section 5(b) above;
(ii) the representations and warranties set forth in Section 3 above
shall be true and correct in all material respects at and as of the Closing
Date;
(iii) LOI shall have performed and complied with all of its covenants
hereunder in all material respects through the Closing;
(iv) no action, suit, or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling, or charge would
(A) prevent consummation of any of the transactions contemplated by this
Agreement, (B) cause any of the transactions contemplated by this Agreement
to be rescinded following consummation, or (C) affect adversely the right
of the Surviving Corporation to own the former assets or to operate the
former business of LOI;
- 16 -
(v) SCN shall have received the resignations, effective as of the
Closing, of each director and officer of LOI other than those whom SCN
shall have specified in writing at least five (5) business days prior to
the Closing;
(vi) all actions to be taken by LOI and/or the LOI Stockholder in
connection with consummation of the transactions contemplated hereby and
all certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby have been taken or delivered to
SCN and are satisfactory in form and substance to SCN;
(vii) the issuance of the SCN Shares to the LOI Stockholder will not
violate federal securities laws or the securities laws of any state of the
United States;
(viii) SCN shall have completed and be satisfied with its due
diligence review, including SCN's review of the Disclosure Schedule; and
(ix) SCN's Board of Directors shall have approved the Merger in their
sole and absolute discretion.
SCN may waive any condition specified in this Section 6(a) if it executes a
writing so stating at or prior to the Closing.
(b) Conditions to Obligation of LOI. The obligation of LOI to consummate
the Merger is subject to satisfaction of the following conditions:
(i) This Agreement and the Merger shall have received the LOI director
and LOI Stockholder' approval required by the Ohio General Corporation Law.
(ii) the representations and warranties set forth in Section 4 above
shall be true and correct in all material respects at and as of the Closing
Date;
(iii) SCN shall have performed and complied with all of its covenants
hereunder in all material respects through the Closing; and
(iv) no action, suit, or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of any federal,
state, local or foreign jurisdiction or before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling or charge would (A)
prevent consummation of any of the transactions contemplated by this
Agreement, (B) cause any of the transactions contemplated by this Agreement
to be rescinded following consummation, or (C) affect adversely the right
of the Surviving Corporation to own the former assets of LOI.
LOI may waive any condition specified in this Section 6(b) if it executes a
writing so stating at or prior to the Closing.
7. Items to be Delivered at or Prior to Closing.
(a) By the LOI Stockholder or LOI. The LOI Stockholder or LOI, as
applicable, shall execute and deliver to SCN, prior to or at the Closing:
(i) Certified resolutions of the directors and stockholders of LOI
authorizing the execution of all documents and the consummation of all
transactions contemplated hereby;
(ii) The Ohio Certificate of Merger which shall be in the form
required by SCN's legal counsel;
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(iii) Stock Certificates representing ownership of all shares of LOI,
duly endorsed to SCN;
(iv) A Service Agreement in the form attached hereto as Exhibit
7(a)(iv);
(v) A certificate duly executed by the President of LOI and the LOI
Stockholder stating as of the Closing Date, all representations and
warranties are true, all covenants and agreements contained in the
Agreement to be performed by LOI and the LOI Stockholder have been
performed or complied with and all conditions to closing have been complied
with;
(vi) An opinion from LOI's counsel in substantially the form attached
hereto as Exhibit 7(a)(vi); and
(vii) Such other instruments as may be reasonably requested by SCN in
order to effect to or carry out the intent of this Agreement.
(b) By SCN. SCN shall deliver to LOI at or prior to the Closing:
(i) Stock Certificates representing the SCN Shares being issued to the
LOI Stockholder pursuant to Section 2(d)(v);
(ii) The Delaware Certificate of Merger in substantially the form
attached hereto as Exhibit 2(a)(1);
(iii) An opinion from SCN's counsel in substantially the form attached
hereto as Exhibit 7(b)(iii);
(iv) A certificate, duly executed by the President of SCN, stating as
of the Closing Date, all representations and warranties of SCN are true,
all covenants and agreements contained in the Agreement to be performed by
SCN have been performed or complied with and all conditions to Closing have
been satisfied;
(v) A Service Agreement in the form attached hereto as Exhibit
7(a)(iv); and
(vi) Such other instruments as may be reasonably requested by LOI or
the LOI Stockholder in order to effect to or carry out the intent of this
Agreement.
8. Termination.
(a) Termination of Agreement. Either of the Parties may terminate this
Agreement with the prior authorization of its board of directors (whether before
or after stockholder approval) as provided below:
(i) the Parties may terminate this Agreement by mutual written consent
at any time prior to the Effective Time;
(ii) SCN may terminate this Agreement by giving written notice to LOI
at any time prior to the Effective Time (A) in the event LOI has breached
any representation, warranty, or covenant contained in this Agreement in
any material respect, SCN has notified LOI of the breach, and the breach
has continued without cure for a period of 30 days after the notice of
breach, (B) if the Closing shall not have occurred on or before October 31,
1997 by reason of the failure of any condition precedent under Section 6(a)
hereof (unless the failure results primarily from SCN breaching any
representation, warranty, or covenant contained in this Agreement) or (C)
in accordance with Section 5(j); or
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(iii) LOI may terminate this Agreement by giving written notice to SCN
at any time prior to the Effective Time (A) in the event SCN has breached
any representation, warranty, or covenant contained in this Agreement in
any material respect, LOI has notified SCN of the breach, and the breach
has continued without cure for a period of 30 days after the notice of
breach or (B) if the Closing shall not have occurred on or before October
31, 1997 by reason of the failure of any condition precedent under Section
6(b) hereof (unless the failure results primarily from LOI breaching any
representation, warranty, or covenant contained in this Agreement).
(b) Effect of Termination. If any Party terminates this Agreement pursuant
to Section 8(a) above, all rights and obligations of the Parties hereunder shall
terminate without any liability of any party to any other Party (except for any
liability of any Party then in breach). Notwithstanding the foregoing, in the
event the Merger is not consummated (i) due to the fault of LOI or the LOI
Stockholder, or (ii) because SCN is dissatisfied with any disclosure made in the
Disclosure Schedule, then LOI agrees to reimburse SCN for SCN's out of pocket
expenses, including but not limited to professional fees, related to the
proposed transaction.
9. Indemnification.
(a) Indemnification by the LOI Stockholder. The LOI Stockholder agrees to
and shall defend, indemnify and hold harmless SCN, its successors and assigns,
officers and directors against any and all losses, liabilities, expenses
(including, but without limitation, reasonable attorneys fees) and damages
resulting from or arising out of the breach, untruth or inaccuracy of any
representation, warranty or covenant of LOI or the LOI Stockholder set forth in
this Agreement, from any loss, liability or expense resulting from or related to
LOI's operation of its business prior to the Effective Time and from any loss,
liability or expense resulting from or related to any actions, suits,
proceedings, hearings, and investigations set forth in Section 3(m) of the
Disclosure Schedule. The LOI Stockholder shall not be liable to SCN for any
claims against the LOI Stockholder under this Section 9(a) unless and until the
aggregate of all claims against the LOI Stockholder exceeds the sum of
$25,000.00, whereupon SCN shall be entitled to recover the full amount of all
claims, including the initial $25,000.00.
(b) Notice to the LOI Stockholder; Opportunity to Defend. SCN agrees to
give prompt notice to the LOI Stockholder of the assertion of any claim, or the
commencement of any suit, action or proceeding, in respect of which indemnity
may be sought under Section 9(a). The LOI Stockholder may participate in and at
his election, or at the request of SCN, assumes the defense of any such suit,
action or proceeding at the LOI Stockholder's expense. The LOI Stockholder shall
not be liable under Section 9(a) for any settlement effected without his consent
of any claim, litigation or proceeding in respect of which indemnity may be
sought under Section 9(a) which consent shall not be unreasonably withheld.
(c) General Indemnification by SCN. SCN agrees to and shall defend,
indemnify and hold harmless the LOI Stockholder, his heirs and assigns against
any and all losses, liabilities, expenses (including, but without limitation,
reasonable attorneys fees) and damages resulting from the breach, untruth or
inaccuracy of any representation, warranty or covenant of SCN set forth in this
Agreement. SCN shall not be liable to the LOI Stockholder for any claims against
SCN under this Section 9(c) unless and until the aggregate of all claims against
SCN exceeds the sum of $25,000.00, whereupon the LOI Stockholder shall be
entitled to recover the full amount of all claims, including the initial
$25,000.00.
(d) Notice to SCN; Opportunity to Defend. The LOI Stockholder agrees to
give prompt notice to SCN of the assertion of any claim, or the commencement of
any suit, action or proceeding in respect of which indemnity may be sought under
Section 9(c). SCN may participate in and at its election, or at the request of
the LOI Stockholder, assume the defense of any such suit, action or proceeding
at SCN's expense. SCN shall not be liable under Section 9(c) for any settlement
effected without its consent of any claim, litigation or proceeding in respect
of which indemnity may be sought hereunder, which consent shall not be
unreasonably withheld.
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(e) Right of Setoff. In the event of any breach of warranty,
representation, covenant or agreement by LOI or the LOI Stockholder giving rise
to indemnification to SCN under Section 9(a) hereof, SCN shall be entitled to
offset the amount of damages incurred by it as a result of such breach of
warranty, representation, covenant or agreement against the amounts payable to
the LOI Stockholder or Orthopedic Institute of Ohio, Inc. under the Service
Agreement. In the event that SCN determines that an amount is to be so offset,
as a condition precedent to such right of setoff, SCN shall give the LOI
Stockholder written notice of the amount of such proposed setoff and the basis
therefor within thirty (30) days after the date on which such amount is finally
determined. If SCN shall not have received written notice from the LOI
Stockholder contesting such setoff within twenty (20) days of their receipt of
such written notice from SCN, the setoff shall be deemed to have been consented
to by the LOI Stockholder, and SCN shall be entitled to deduct the entire amount
claimed as a setoff from the next succeeding amounts payable under the Service
Agreement. In the event that the LOI Stockholder shall object to the proposed
setoff by written notice received by SCN during such twenty (20) day period, the
entitlement of SCN to the claimed setoff shall be determined as set forth in
Section 10.4.3 and Section 10.4.4 of the Service Agreement.
10. Miscellaneous.
(a) Survival. The representations and warranties of the LOI Stockholder,
LOI and SCN contained in this Agreement and the indemnifications contained
herein shall survive the Closing. Except as set forth in the following sentence
of this Agreement, no claim for indemnification with respect to any alleged
misrepresentation or breach of warranty or covenant may be made after two (2)
years following the Closing Date. SCN shall be entitled to indemnification for
claims for breaches of representations, warranties or covenants relating to
matters involving the payment of taxes (including penalties and/or interest
thereon) or reimbursement of any amounts to Medicare, Medicaid or third-party
payors (including penalties and/or interest thereon) for so long as the
applicable statute of limitations for collection of such amounts continues. Any
matter to which indemnification pertains and with respect to which a claim has
been asserted or threatened following the Closing Date shall continue to be
subject to the indemnification under this Agreement until finally terminated,
settled, resolved or adjudicated; and all terms, conditions and stipulations of
this Agreement shall likewise continue to apply.
(b) No Third-Party Beneficiaries. Except as provided in Section 9(e), this
Agreement shall not confer any rights or remedies upon any Person other than the
parties and their respective successors and permitted assigns.
(c) Entire Agreement. This Agreement (including the documents referred to
herein) constitutes the entire agreement between the parties and supersedes any
prior understandings, agreements, or representations by or between the parties,
written or oral, to the extent they related in any way to the subject matter
hereof.
(d) Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties named herein and their respective successors
and permitted assigns. No party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other Party.
(e) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(f) Headings. The section headings contained in this Agreement are inserted
for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(g) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
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business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to LOI or the LOI Stockholder: Copy to:
Xxxxx X. Xxxxxxxxxx, M.D. Xxxxx X. Xxxxxxxx, Esq.
000 X. Xxxx Xxxxxx, Xxxxx 000 Xxxx, Meredith, Witter, Xxxxx & Xxxxxx
Xxxx, Xxxx 00000 000 Xxxxx Xxxxxxxxx Xxxxxx, Xxxxx 000
Xxxx, Xxxx 00000
Facsimile: (000) 000-0000
If to SCN: Copy to:
Xxxxx X. Xxxxx, President Xxxxx X. Xxxxxxx, Esq.
Specialty Care Network, Inc. Baker, Donelson, Bearman & Xxxxxxxx
00 Xxxxx Xxxxxxxxx, Xxxxx 000 165 Madison Ave, Suite 2100
Lakewood, Colorado 80228 Xxxxxxx, Xxxxxxxxx 00000
Facsimile: (000) 000-0000 Facsimile: (000) 000-0000
Any party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other party
notice in the manner herein set forth.
(h) Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Delaware without giving effect
to any choice or conflict of law provision or rule (whether of the State of
Delaware or any other jurisdiction) that would cause the application of the laws
of any jurisdiction other than the State of Delaware.
(i) Amendments and Waivers. The parties may mutually amend any provision of
this Agreement at any time prior to the Effective Time with the prior
authorization of their respective boards of directors; provided, however, that
any amendment effected subsequent to LOI stockholder approval will be subject to
the restrictions contained in the Ohio General Corporation Law. No amendment of
any provision of this Agreement shall be valid unless the same shall be in
writing and signed by both of the parties. No waiver by any party of any
default, misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
(j) Severability. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(k) Expenses. Each of the Parties will bear its own costs and expenses
(including legal fees and expenses) incurred in connection with this Agreement
and the transactions contemplated hereby.
(l) Construction. The Parties have participated jointly in the negotiation
and drafting of this Agreement. In the event an ambiguity or question of intent
or interpretation arises, this Agreement shall be construed as if drafted
- 21 -
jointly by the Parties and no presumption or burden of proof shall arise
favoring or disfavoring any Party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context otherwise requires. The
word "including" shall mean including without limitation.
(m) No Referrals Required. The Parties agree that no part of this Agreement
shall be construed to induce or encourage the referral of patients or the
purchase of health care services or supplies. The Parties acknowledge that there
is no requirement under this Agreement or any other agreement between LOI and
SCN that any party refer any patients to any health care provider or purchase
any health care goods or services from any source. Additionally, no payment
under this Agreement is in return for the referral of patients, if any, or in
return for purchasing, leasing or ordering services from SCN or any of SCN's
affiliates. The Parties may refer patients to any company or person providing
services and will make such referrals, if any, consistent with professional
medical judgment and the needs and wishes of the relevant patients.
(n) Incorporation of Exhibits and Schedules. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
* * * * *
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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first above written.
SPECIALTY CARE NETWORK, INC.
By:
----------------------------
Title:
-------------------------
LIMA ORTHOPEDICS, INC.
By:
----------------------------
Title:
-------------------------
-------------------------------
Xxxxx X. Xxxxxxxxxx, M.D.
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