STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") dated as of the 10th day
of December, 1999, is entered into by and among Northeast Medical Management,
Inc., a New York corporation ("Northeast"); the persons executing this Agreement
under the caption "Stockholders" on the signature page(s) of this Agreement
(collectively the "Stockholders" and individually a "Stockholder"); Oak Tree
Medical Systems, Inc., a Delaware corporation ("Oak Tree"); and Oak Tree Medical
Systems Practice Management, Inc., a New York corporation (the "Purchaser").
Certain other capitalized terms used herein and not otherwise defined shall have
the meanings as set forth in Article 12 hereof.
W I T N E S S E T H:
WHEREAS, Northeast is engaged in the business of providing administrative
and management services to physician practices (the "Business") and currently
manages the physician practice(s) set forth on Schedule A (the "Practices"),
which Schedule A also includes the addresses of the Practices;
WHEREAS, the Practices employ or contract with the physicians set forth on
Schedule B (the "Physicians"), which Schedule B also identifies which Practice
such Physician is affiliated with;
WHEREAS, the Stockholders own all of the issued and outstanding capital
stock of Northeast (collectively, the "Stock"), in the amounts set forth on
Schedule I to this Agreement;
WHEREAS, the Purchaser desires to purchase from the Stockholders, and the
Stockholders desire to sell, convey, transfer, assign and deliver to the
Purchaser, the capital stock owned by such Stockholder in the Stockholder, on
the terms and subject to the conditions hereinafter set forth;
WHEREAS, each of the Practices and Purchaser shall enter into an Amended
and Restated Practice Management Agreement (the "Amended and Restated Practice
Management Agreement") in substantially the form attached hereto as Exhibit A,
to become effective as of the Closing Date, which shall supersede all current
agreements between Northeast and such Practices relating to the provision of
physician management services to the Practices; and
WHEREAS, Purchaser or its affiliated designee has entered into or intends
to enter into other purchase agreements (the "Other Agreements") with other
physician practice management companies and/or the stockholders of such
companies (together with Northeast, the "Target Companies").
NOW, THEREFORE in consideration of the premises and the respective mutual
agreements, covenants, representations and warranties contained in this
Agreement, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties to this Agreement
agree as follows:
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PURCHASE AND SALE OF STOCK
1.1 Purchase and Sale of Stock. Subject to the terms and conditions of
this Agreement, at the Closing, each Stockholder shall sell, transfer, convey,
assign and deliver to the Purchaser, and the Purchaser shall purchase, accept
and receive, all of Stockholder's right, title and interest to the Stock owned
by such Stockholder, free of all liens, encumbrances, claims, and any other
restrictions whatsoever.
1.2 Method of Conveyance. The sale of the Stock shall be effected on the
Closing Date by each Stockholder's execution and delivery of stock powers
(hereinafter collectively referred to as the "Instruments of Conveyance")
necessary to effectively vest in the Purchaser all of Stockholder's right, title
and interest in the Stock.
2
EXCLUDED LIABILITIES
Each Stockholder acknowledges that, notwithstanding the structure of this
transaction as a stock purchase, the Purchaser is not assuming (collectively the
"Excluded Liabilities") the following:
(a) any foreign, federal, state and local taxes or liabilities, including
any interest or penalties thereon;
(b) any Medicare or Medicaid liabilities or obligations (including without
limitation repayment or overpayment liabilities in respect of previously paid or
denied claims);
(c) any liabilities or obligations arising out of any breach, default,
event of default or violation, at any time on or prior to the Closing Date, of
any contract, lease, agreement, commitment or law; and
(d) any expenses paid or incurred by Northeast or the Stockholders
incident to the preparation of or entering into and carrying into effect of this
Agreement and the transactions contemplated hereby, except as otherwise agreed
to in writing by the parties.
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PURCHASE PRICE AND PAYMENT
3.1 Purchase Price. (a) In payment for the Stock, Purchaser shall, and Oak
Tree shall cause Purchaser to, pay to each Stockholder, in accordance with his
or her Proportionate Share, an aggregate amount (the "Purchase Price") equal to
the product of (x) 5 times (y) Adjusted EBITDA for 1998.
(b) The Purchase Price shall be payable and subject to adjustment as
follows:
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(i) 60% of the Purchase Price shall be payable by the
Purchaser to the Stockholder Representative at Closing (for distribution to the
Stockholders in accordance with his or her Proportionate Share) by wire transfer
of immediately available funds to a deposit account with a bank designated by
the Stockholder Representative giving notice thereof to Purchaser and Oak Tree
at least one business day prior to the Closing Date (the "Cash Purchase Price").
(ii) The remaining portion of the Purchase Price (net of the
Cash Purchase Price determined and paid in accordance with above item (i)) shall
be payable in shares of Oak Tree Common Stock (the "Stock Purchase Price") equal
to the remainder, if any, of (A) the product of (x) 5 times (y) Average EBITDA,
minus (B) the Cash Purchase Price. Within 15 days of final determination of
Average EBITDA, Oak Tree shall direct its transfer agent to deliver to the
Stockholder Representative (for distribution to the Stockholders in accordance
with his or her Proportionate Share) a number of shares (the "Stock Purchase
Price Shares") of Oak Tree Common Stock, rounded up to the nearest whole share
and bearing the appropriate "restricted stock legend" equal to (x) the Stock
Purchase Price, divided by (y) the lesser of the average of the Closing Prices
of the Oak Tree Common Stock on each of the five trading days prior to the day
on which the obligation to deliver the Stock Purchase Price Shares occurs or the
Specified Adjusted Price (as further adjusted for stock splits, stock dividends
and similar recapitalizations after the date of this Agreement affecting all of
the outstanding shares of Oak Tree Common Stock). In the event the calculation
set forth in the first sentence of this Section 3.1(b)(ii) results in a negative
number (the "Negative Result"), then the Stockholders shall not be entitled to
receive any Stock Purchase Price Shares.
(iii) The Stock Purchase Price shall be determined by the
Purchaser by a date no later than 60 days after the end of the Earnout Period.
Upon determination of such amount, Purchaser shall provide Stockholder
Representative with a written report setting forth the Stock Purchase Price and
the calculations of such amount (the "Report"). Stockholder Representative shall
have 15 days after receipt of the Report to challenge the Report by issuing a
written objection to Purchaser (the "Dispute Report"). If no Dispute Report is
provided within such 15-day period, the Report shall become final and shall not
be subject to further review by the parties. If a Dispute Report is submitted
within such 15-day period, and the Purchaser and Stockholder Representative are
unable to resolve the Stockholder Representative's objection within 30 days of
the receipt of the Dispute Report, the dispute shall be submitted to a
recognized firm of independent certified public accountants experienced in
auditing health care companies (other than accountants for Purchaser and
Northeast) selected jointly by the Purchaser and Stockholder Representative or,
if the Purchaser and Stockholder Representative cannot agree on an accountant,
such accountant as selected by the accountants of the Purchaser and Stockholder
Representative (the "Settlement Accountants"). Within five (5) business days
after selection of the Settlement Accountants, the parties shall submit
documents supporting their respective positions to the Settlement Accountants
and the Settlement Accountants shall issue a final report resolving the dispute
within 30 days thereafter, which final report shall be final and binding on the
Stockholders, Oak Tree and the Purchaser. The costs and expenses of the services
of the Settlement Accountants shall be paid by the party whose calculation of
the Stock Purchase Price when compared to the Settlement Accountants'
calculation of such amount results in the greatest difference.
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3.2 [Intentionally left blank]
3.3 Lock-up and Price Protection Provisions. The Stock Purchase Price
Shares shall be subject to the following lock-up and price protection
provisions.
(a) Lock-up for Stock Purchase Price Shares. During the first six
month after the later of (x) the date of receipt by Stockholder or its designees
of the Stock Purchase Price Shares, and (y) the date such Stockholder or its
designees may dispose of such shares in open market, routine broker transactions
under applicable securities laws, the Stockholder or its designees shall not,
other than pursuant to a Permitted Exception, be allowed to dispose of more than
one-sixth of the number of Stock Purchase Price Shares during any 30-day period
within such six-month period. All sales of the Stock Purchase Price during such
six-month period shall be made only in open market, routine broker transactions.
(b) Price Protection for Stock Purchase Price Shares.
(i) If, during the six-month period after receipt of the Stock
Purchase Price Shares ("Disposal Period One"), either the Stockholder or its
designees shall have sold Stock Purchase Price Shares, not in violation of the
lock-up provisions set forth herein, for a sales price (excluding commissions,
discounts and other costs of sale) less than the Specified Adjusted Price, then,
at the end of Disposal Period One, Oak Tree shall issue to Stockholder or its
designees, at no additional cost to the Stockholder or such designees, a number
of shares ("Price Protection Shares One") of Oak Tree Common Stock equal to the
quotient of (I) the remainder ("Shortfall Amount One") of (A) the product of (x)
the number of such Stock Purchase Price Shares sold during the Disposal Period
One at less than the Specified Adjusted Price ("Disposal Shares One"), times (y)
the Specified Adjusted Price, minus (B) the aggregate sales price (excluding
commissions, discounts and other costs of sale) for the Stock Purchase Price
Shares sold during the Disposal Period One at less than the Specified Adjusted
Price, divided by (II) the average of the Closing Prices of the Oak Tree Common
Stock on each of the five trading days prior to the last trading day of Disposal
Period One (the "Protected Price"). The Price Protection Shares One shall bear
the appropriate "restricted stock legend." In lieu of issuing Price Protection
Shares One, the Purchaser, at its option, may deliver cash payments to
Stockholder or its designees equal to the relevant Shortfall Amount One.
(ii) In the event the Stockholder (or its designees) is issued
any Price Protection Shares One, then during the six month period after the
later of (x) the end of the Disposal Period One and (y) the date the Stockholder
or its designees may dispose of such Shares in open market, routine broker
transactions under applicable securities laws ("Disposal Period Two"), the
Stockholder and its designees shall not, other than pursuant to a Permitted
Exception, be allowed to dispose of more than one-sixth of the number of Price
Protection Shares One during any 30-day period within Disposal Period Two. All
sales of Stock Purchase Price Shares or Price Protection Shares One, as the case
may be, during Disposal Period Two shall be made only in open market, routine
broker transactions.
(iii) If, during Disposal Period Two, the Stockholder or its
designees shall have sold Price Protection Shares One, not in violation of the
lock-up provisions set forth herein, for a sales price (excluding commissions,
discounts and other costs of sale) less than the
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Protected Price, then, at the end of Disposal Period Two, Oak Tree shall issue
to Stockholder or its designees, at no additional cost to the Stockholder or
such designees, a number of shares ("Price Protection Shares Two") of Oak Tree
Common Stock equal to the quotient of (I) the remainder ("Shortfall Amount
Two"), if any, of (A) the product of (x) the number of such Price Protection
Shares One sold during Disposal Period Two at less than the Protected Price (the
"Disposal Shares Two"), times (y) the Protected Price, minus (B) the aggregate
sales price (excluding commissions, discounts and other costs of sale) for the
Price Protection Shares One sold during the relevant Disposal Period Two at less
than the Protected Price, divided by (II) the average of the Closing Prices of
the Oak Tree Common Stock on each of the five trading days prior to the last
trading day of the respective Disposal Period Two. The Price Protection Shares
Two shall bear the appropriate "restricted stock legend." In lieu of issuing
Price Protection Shares Two, the Purchaser, at its option, may deliver cash
payments to Stockholder or its designees equal to Shortfall Amount Two.
(iv) If, during Disposal Period Two, the Stockholder or its
designees shall have sold Price Protection Shares Two for a sales price
(exclusive of commissions, discounts and other costs of sale) greater than the
Protected Price for such shares, then Stockholder or its designees shall return
to Oak Tree for cancellation stock certificates representing the number of
shares (the "Excess Shares") equal to the quotient of (I) the remainder of (A)
the product of (x) the number of Price Protection Shares One sold during
Disposal Period Two at greater than the Protected Price (the "Premium Shares"),
times (y) the sales price of such Premium Shares, minus (B) the product of (x)
the number of Premium Shares, times (y) the Protected Price for such Premium
Shares, divided by the Specified Adjusted Price. Such certificates shall be
delivered to Oak Tree free and clear of all liens, claims and encumbrances.
(v) The intent of the protection provisions set forth in this
Section 3.3(b) is to assure that, in the event the Stockholder desires to
dispose of the Stock Purchase Price Shares or Price Protection Shares One during
the respective six month period(s) referenced above, that the Stockholder will
realize at least the Specified Adjusted Price or Protected Price, as applicable,
per share (exclusive of commissions and other costs of sale), upon a sale in the
open market.
(c) Procedures Relating to Issuance of Shares. In the event Oak Tree
is obligated to issue any shares pursuant to this Section 3.3, within ten days
of receipt of the appropriate documentation from the Stockholder or its
designees concerning its sale of any shares for which it seeks any price
protection provided herein, Oak Tree shall (i) provide such Stockholder or its
designees with its calculations of the number of such shares to be issued to
such Stockholder or its designees and (ii) instruct its transfer agent to
deliver certificates for such additional shares to the Stockholder or its
designees.
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CLOSING
4.1 The Closing. The consummation of the transactions contemplated by this
Agreement (the "Closing") shall take place simultaneous with the consummation of
the Other Agreements, unless otherwise agreed to by Northeast Representative and
Oak Tree, but in no
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event later than the Termination Date. Except as otherwise agreed in writing by
the parties hereto, such date shall be referred to herein as the "Closing Date",
and the transactions contemplated hereby shall be effective as of 12:01 a.m. on
the Closing Date.
4.2 Obligations of Northeast and Stockholders at Closing. At the
Closing, Northeast and Stockholders shall:
(a) deliver or cause to be delivered to the Purchaser the
Instruments of Conveyance, including without limitation, stock powers,
accompanied by stock certificates representing the Stock;
(b) deliver or cause to be delivered to Purchaser a certificate of
an executive officer or member of Northeast to the effect that the conditions
set forth in Article 7 have been satisfied and that the representations and
warranties contained in Article 5 are true and correct at and as of the Closing
Date except: (i) for changes specifically permitted by or disclosed pursuant to
this Agreement; and (ii) that those representations and warranties which address
matters only as of a particular date shall remain true and correct as of such
date;
(c) deliver or cause to be delivered to Purchaser copies of
resolutions duly adopted by the Board of Directors and the Stockholders of
Northeast authorizing and approving the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby, certified by an
executive officer of Northeast;
(d) execute and deliver or cause to be delivered to Purchaser the
consents of the landlord or the lessor for all real property leases or tangible
asset leases (the "Lessor Consents"), in each case, if required, with respect to
assets that are material to the Business;
(e) deliver to Purchaser or cause to be delivered to Purchaser all
other documents and instruments, duly executed where required or appropriate, as
the Purchaser may reasonably request in connection with the transactions
contemplated by this Agreement;
(f) deliver or cause to be delivered to Purchaser a certificate of
incumbency of Northeast, executed by an executive officer or member of
Northeast, which lists the officers or members of Northeast authorized to
execute this Agreement and closing documents on behalf of Northeast and their
specimen signatures; and
(g) deliver to Purchaser or cause to be delivered to Purchaser an
opinion letter of counsel to Northeast with respect to the matters set forth in
(I) the first sentence of Section 5.1, (II) the matters set forth in subsections
(i) and (ii) of the second sentence of Section 5.1, and (III) the matters set
forth in Section 5.2.
4.3 Obligations of Purchaser and Oak Tree at Closing. At Closing the
Purchaser and/or Oak Tree, as the case may be, shall:
(a) deliver to Stockholder Representative the Cash Purchase Price as
provided in Section 3.1 of this Agreement;
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(b) deliver or cause to be delivered to Stockholder Representative
certificates of an executive officer of Purchaser and Oak Tree to the effect
that the conditions set forth in Article 8 have been satisfied, and that the
representations and warranties contained in Article 6 are true and correct at
and as of the Closing Date, except: (i) for changes specifically permitted by or
disclosed pursuant to this Agreement, and (ii) that those representations and
warranties which address matters only as of a particular date shall remain true
and correct as of such date;
(c) deliver to Stockholder Representative copies of resolutions duly
adopted by Oak Tree and Purchaser authorizing and approving the execution and
delivery of this Agreement, and the consummation of the transactions
contemplated hereby, certified by an executive officer;
(d) execute and deliver to Stockholder Representative the Corporate
Governance Agreement in the form attached hereto as Exhibit E (the "Governance
Agreement");
(e) execute and deliver to (i) Xxxxxx Xxxxxx the Employment
Agreement in the form attached hereto as Exhibit F (the "Xxxxxx Employment
Agreement") and (ii) Xxx Xxxx the Employment Agreement in the form attached
hereto as Exhibit G (the "Xxxx Employment Agreement");
(f) deliver or cause to be delivered to Stockholder Representative a
certificate of incumbency of Purchaser and Oak Tree, executed by an executive
officer, which lists the officers of Purchaser and Oak Tree authorized to
execute this Agreement and closing documents on behalf of Purchaser and Oak Tree
and their specimen signatures; and
(g) deliver to Stockholder Representative or cause to be delivered
to Stockholder Representative an opinion letter of counsel to the Purchaser and
Oak Tree with respect to the matters set forth in (I) the first sentence of
Section 6.1, (II) the matters set forth in subsections (i) and (ii) of the
second sentence of Section 6.1, and (III) the matters set forth in Section 6.2.
4.4 Consents of Third Parties. If by the Closing Date any required consent
to effect the assignment of any contract has not been obtained, and Stockholder
Representative desires to have Purchaser's assistance in obtaining such consent,
the Purchaser shall use its best efforts to assist the Stockholder
Representative in obtaining such consent.
4.5 Delivery of Exhibits and Disclosure Schedules. The parties hereby
agree that they are executing this Agreement without the Exhibits and Schedules
hereto, and that the parties shall deliver such Exhibits and Schedules in form
and substance satisfactory to Oak Tree and Northeast Representative the other
party by no later than the date on which Northeast Financials as described in
Section 5.9 are delivered hereunder.
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5
REPRESENTATIONS AND WARRANTIES OF THE
NORTHEAST AND THE STOCKHOLDERS
In order to induce the Purchaser and Oak Tree to enter into this Agreement
and to consummate the transactions contemplated by this Agreement, each of
Northeast and the Stockholders, jointly and severally with respect to the
representations and warranties of Northeast, and severally by each Stockholder
only with respect to the representations concerning such Stockholder, hereby
represents and warrants to the Purchaser and Oak Tree as follows:
5.1 Organization, Authority, Qualification. Northeast is a corporation or
limited liability company duly incorporated or formed, validly existing and in
good standing under the laws of the state of its incorporation or formation.
Northeast: (i) has full power and authority to own and operate its properties
and assets and to conduct and carry on its business as it is now being
conducted; (ii) is duly licensed or qualified to transact or conduct business
and is in good standing, in each jurisdiction in which the ownership or lease of
real property or the conduct of its business requires it to be so licensed,
authorized or qualified and where its failure to be so qualified would have a
Material Adverse Effect; and (iii) has all material governmental licenses,
certifications, permits, approvals and other authorizations necessary to own or
lease its properties and assets and carry on its business as it is now being
conducted. All of the issued and outstanding stock or equity interests of
Northeast is owned by the Stockholders, free and clear of all options, powers,
claims and rights of others, in the amounts and the percentages set forth on
Schedule 5.1 hereto.
5.2 Authorization. Each of Northeast and the Stockholders has full power,
ability and authority to execute and deliver this Agreement and the Related
Agreements to which it is a party, to perform its obligations under, and to
consummate the transactions contemplated by, this Agreement and the Related
Agreements to which it is a party. This Agreement has been duly and validly
executed and delivered by each of Northeast and the Stockholders, and
constitutes, and the Related Documents when executed shall constitute, its
legal, valid and binding obligations, enforceable against each of them in
accordance with its terms, except as the same shall be limited by the effect of
bankruptcy, insolvency, fraudulent transfer and similar laws affecting
creditor's rights in general or by the effect of general principles of equity
(whether applied in a proceeding at law or in equity) and the discretion of the
court in which such proceeding is brought. The Board of Directors or the members
of Northeast has approved the execution, delivery and performance of this
Agreement and the Related Agreements to which Northeast is a party, and the
consummation of the transactions contemplated thereby.
5.3 No Violation. The execution, delivery and performance of this
Agreement by each of Northeast and the Stockholders does not, and the
consummation by each of Northeast and the Stockholders of the transactions
contemplated hereby will not, and the compliance by each of Northeast and the
Stockholders with the provisions of this Agreement will not, (i) with respect to
Northeast, conflict with or violate any provision of its articles of
organization, certificate of incorporation, bylaws or operating agreement, (ii)
with or without notice or the passage of time or both, constitute, give rise or
result in the breach, default or event of default under, or violation of any
obligation under, or in the termination or acceleration of or entitle any
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party to terminate or accelerate, or result in the imposition of any lien upon
or the creation of a security interest or encumbrance in or upon any of
Northeast's assets, business or properties pursuant to, any note, bond,
mortgage, indenture, deed, license, franchise, permit, lease, contract,
agreement or other instrument, commitment or obligation to which Northeast or
Stockholder is a party or by which Northeast or Stockholders or any of
Northeast's assets are bound or subject, and will not violate or conflict with
any other material restriction of any kind or character to which Northeast or
Stockholders, or any of their properties or assets, are subject, (iii) violate
any order, writ, injunction, decree, judgment or ruling of any court or
governmental authority applicable to Northeast or Stockholders, or (iv) violate
any statute, law, rule or regulation applicable to Northeast or Stockholders.
5.4 [Intentionally Omitted]
5.5 [Intentionally Omitted]
5.6 [Intentionally Omitted]
5.7 Capitalization. The authorized capital stock or equity interest of
Northeast consists of _____ shares of Common Stock, par value $_________ per
share, of which _____ shares are issued and outstanding and owned by the
Stockholders, _____ shares are issued but not outstanding, and _____ shares are
authorized and unissued. All issued shares of Northeast's capital stock have
been duly and validly issued and are fully paid and non-assessable (except as
provided in New York Business Corporation Law ss. 630). Except as may be
disclosed on Schedule 5.7 and as provided for in this Agreement, there are no
outstanding options, warrants, rights, puts, calls, commitments, conversion
rights, plans or other agreements of any character to which Northeast or
Stockholder is a party or otherwise bound which provide for the acquisition,
disposition or issuance of any issued but not outstanding, outstanding, or
authorized and unissued shares of capital stock of Northeast. There is no
personal liability, and there are no preemptive or similar rights, attached to
Northeast's capital stock (except as may be provided by New York Business
Corporation Law ss. 622). The Stockholders now have, and on the Closing will
have, good and marketable title to and unrestricted power to vote and sell the
Stock designated as owned by such Stockholder, free and clear of any lien,
claim, encumbrance or restriction whatsoever and, upon purchase and payment
therefor by Purchaser, in accordance with the terms of this Agreement, Purchaser
will obtain good and marketable title to all such Stock free and clear of any
lien, claim, encumbrance or restriction whatsoever. All Stock to be sold by such
Stockholder is registered in the name of such Stockholder.
5.8 Interests in Other Entities. Except as may be disclosed on Schedule
5.8 hereto, Northeast does not (A) own, directly or indirectly, of record or
beneficially, any shares of voting stock or other equity securities of any other
corporation or limited liability company, (B) have any ownership interest,
direct or indirect, of record or beneficially, in any unincorporated entity, or
(C) have any obligation, direct or indirect, present or contingent, (1) to
purchase or subscribe for any interest in, advance or loan monies to, or in any
way make investments in, any person or entity, or (2) to share any profits or
capital investments or both.
5.9 Financial Statements. Northeast has furnished (or will furnish prior
to the Closing Date) to the Purchaser audited balance sheets as of December 31,
1998 and 1997 and the
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unaudited balance sheet for the six-month period ended June 30, 1999, and the
related statements of operations, changes in stockholders' equity and cash flow,
together with the notes thereto (all such financial statements of Northeast, or
such affiliated group, are hereinafter referred to as the "Northeast
Financials"). Such financial statements were (or will be) prepared in accordance
with generally accepted accounting principles ("GAAP") consistently applied, and
present fairly, in material respects, the financial position of Northeast as at
the dates thereof and the results of operations and cash flows for the periods
indicated, except that the aforementioned unaudited financial statements are (or
will be) subject to normal recurring adjustments which might be required as a
result of year end audit. The books and records of Northeast are in all material
respects complete and correct, have been maintained in accordance with good
business practices, and accurately reflect the basis for the financial condition
of Northeast as set forth in the aforementioned financial statements.
5.10 Absence of Undisclosed Liabilities. Northeast has no liabilities or
obligations of any nature whatsoever, whether accrued, absolute, contingent or
otherwise, which have not been (i) in the case of liabilities and obligations of
a type customarily reflected on a corporate balance sheet prepared in accordance
with GAAP, set forth on their respective balance sheet as of June 30, 1999 (the
"Balance Sheet" and such date is hereinafter called the "Northeast Balance Sheet
Date") or (ii) in the case of other types of liabilities and obligations,
described in any of the Schedules delivered by Northeast pursuant hereto or
omitted from such Schedules in accordance with the terms of this Agreement, or
(iii) incurred, consistent with past practice, in the ordinary course of
business since Northeast Balance Sheet Date (in the case of liabilities and
obligations of the type referred to in clause (i) above).
5.11 Properties. Northeast owns or has the right to use all assets listed
on Northeast's Balance Sheet or acquired since Northeast Balance Sheet Date,
free and clear of all mortgages, liens, pledges, charges or encumbrances of any
nature whatsoever, except for those which are described in the notes to such
Balance Sheet and Schedule 5.11 hereto, excluding any assets disposed of in the
ordinary course of business since Northeast Balance Sheet Date. All plants,
structures, machinery and equipment which are material to the business,
operations or condition (financial or otherwise) of Northeast are in
substantially operating condition, and are suitable for the purposes for which
they are used; and none of such plants, structures, machinery or equipment are
in need of maintenance or repairs, except for ordinary, routine maintenance and
repairs which are not substantial in nature or cost.
5.12 [Intentionally Omitted]
5.13 Absence of Changes. Since Northeast Balance Sheet Date, there has not
been (i) any Material Adverse Change in the condition (financial or otherwise),
assets, liabilities, business or results of operations of Northeast (including,
without limitation, any such Material Adverse Change resulting from damage,
destruction or other casualty loss, whether or not covered by insurance), (ii)
any waiver by Northeast of any right, or cancellation of any debt or claim, of
substantial value, (iii) any declaration, setting aside or payment of any
dividend or other distribution or payment in respect of the capital stock of
Northeast, (iv) any change in any of the arrangements which are referred to in
Section 5.17 hereof or any transactions of the type which is referred to in
clause (f) of Section 5.18 hereof, or (v) any change in the accounting
principles or methods which are utilized by Northeast.
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5.14 Litigation. Other than as set forth in Schedule 5.14 hereto, there
are no suits or actions, or administrative, arbitration or other proceedings or
governmental investigations, pending or, to the knowledge of Northeast or
Stockholders, threatened, against or relating to Northeast (or the Stockholders
with respect to the Business) or their respective business and assets. There are
no judgments, orders, stipulations, injunctions, decrees or awards in effect
which relate to Northeast and/or the Stockholders with respect to the Business,
the effect of which is to limit, restrict, regulate, enjoin or prohibit any
business practice in any area, or the acquisition of any properties, assets or
businesses, or otherwise materially adverse to their respective businesses
assets.
5.15 No Violation of Law. Northeast is not engaging in any activity or
omitting to take any action as a result of which (a) it is in violation in any
material respect of any law, rule, regulation, zoning or other ordinance,
statute, order, injunction or decree, or any other requirement of any court or
other governmental authority, applicable to it (individually or on a
consolidated basis), its Business or assets, including, but not limited to,
those relating to: healthcare (including Medicare and Medicaid); occupational
safety and health; environmental and ecological protection (e.g., the use,
storage, handling, transport or disposal of pollutants, contaminants or
hazardous or toxic materials or wastes, and the exposure of persons thereto);
business practices and operations (including federal and state anti-kickback
laws and regulations), labor practices; employee benefits; and zoning and other
land use, and (b) which would have a Material Adverse Effect on Northeast.
5.16 Tax Matters. Northeast has filed with the appropriate governmental
agencies all tax returns and reports required to be filed by it, and has paid in
full or made adequate provision for the payment of, all material taxes,
interest, penalties, assessments and deficiencies shown to be due or claimed to
be due on such tax returns and reports. The provisions for taxes which are set
forth on the Balance Sheet are adequate for all accrued and unpaid taxes of
Northeast as of Northeast Balance Sheet Date arising out of transactions entered
into, or any state of facts existing, on or prior to that date. The provisions
for taxes which are set forth on the respective books of account of Northeast
are adequate for all taxes which accrued after Northeast Balance Sheet Date.
Neither Northeast nor the Stockholders on behalf of Northeast has executed or
filed with any taxing authority any agreement extending the period for the
assessment or collection of any taxes, and is not a party to any pending or, to
the best of the knowledge of Northeast and Stockholders, overtly threatened in
writing, action or proceeding by any governmental authority for the assessment
or collection of income or other taxes. The United States federal income tax
returns of Northeast and the Stockholders with respect to Northeast have not
been examined by the Internal Revenue Service.
5.17 Employee Arrangements. Schedule 5.17 hereto contains a complete and
correct list and summary description of all (i) union, collective bargaining,
employment, management, termination and consulting agreements to which Northeast
is a party or otherwise bound, and (ii) compensation plans and arrangements;
bonus and incentive plans and arrangements; deferred compensation plans and
arrangements; pension and retirement plans and arrangements; profit-sharing and
thrift plans and arrangements; stock purchase and stock option plans and
arrangements; hospitalization and other life, health or disability insurance or
reimbursement programs; holiday, sick leave, severance, vacation, tuition
reimbursement, personal loan and product purchase discount policies and
arrangements; and other plans or arrangements providing
11
for benefits for employees of Northeast. Such Schedule also lists the names and
compensation of all employees of Northeast whose earnings during the last fiscal
year was $50,000 or more (including bonuses and other incentive compensation),
and all employees who are expected to receive at least said amount in respect of
the present year.
5.18 ERISA.
(a) Schedule 5.18 hereto lists each "employee pension benefit plan"
(collectively called "Northeast Pension Plans" and severally called "Northeast
Pension Plan"), as such term is defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and each "employee
welfare benefit plan" (collectively called "Northeast Welfare Plans" and
severally called "Northeast Welfare Plan") as such term is defined in Section
3(1) of ERISA, which is maintained by Northeast to which it contributes or is
obligated or required to contribute. Northeast Pension Plans and Northeast
Welfare Plans are hereinafter sometimes collectively referred to as the
"Northeast Plans" and severally referred to as an "Northeast Plan".
(b) Each Northeast Pension Plan and the trust (if any) forming a
part thereof has been determined by the IRS to be qualified under Section 401(a)
of the Internal Revenue Code of 1986, as amended (the "Code"), and is exempt
from taxation under Section 501(a) of the Code, and nothing has occurred since
the date of such determination which would adversely affect such qualification.
(c) Northeast will deliver to Oak Tree and the Purchaser complete
and correct copies of (i) Northeast Plans, and all related trust agreements,
(ii) all written interpretations and summary plan descriptions relating thereto,
(iii) the two most recent annual reports (Form 5500 Series) and accompanying
schedules, which were prepared in connection with each Northeast Plan, (iii) all
IRS determination letters relating to Northeast Plans, and (iv) the two most
recent actuarial evaluation reports which were prepared in connection with any
of Northeast Plans.
(d) None of Northeast, any Northeast Plans, any trust created
thereunder, or any trustee or administrator thereof has engaged in a transaction
which would subject Northeast or any of Northeast Plans to the tax on prohibited
transactions imposed by Section 4975 of the Code or to a civil penalty assessed
pursuant to Section 502(i) of ERISA.
(e) None of Northeast Pension Plans has incurred any "accumulated
funding deficiency", as such term is defined in Section 302 of ERISA and Section
412 of the Code, whether or not waived.
(f) Northeast has not incurred, or is not expected to incur,
directly or indirectly, any liability to the Pension Benefit Guaranty
Corporation (the "PBGC") with respect to any Northeast Pension Plan. The PBGC
has not instituted proceedings to terminate any Northeast Pension Plan, nor has
it notified Northeast or the Stockholders, either formally or informally, of its
intention to institute any such proceedings.
(g) There have not been, with respect to any of Northeast Plans, any
"reportable events", as such term is defined in Section 4043(b) of ERISA.
12
(h) Northeast has not maintained or contributed to, or been
obligated or required to contribute to, a "multiemployer plan", as such term is
defined in Section 3(37) of ERISA.
(i) Northeast has paid in full all amounts which were required to
have been paid by it on or prior to the date hereof as contributions to any of
Northeast Pension Plans. The current value of all accrued benefits under each of
Northeast Pension Plans did not, as of the latest valuation date thereof, exceed
the then current value of the assets of such Northeast Pension Plan allocable to
such accrued benefits, based upon the actuarial assumptions then being utilized
with respect thereto.
(j) There is not pending, and to the knowledge of Northeast and the
Stockholders there is not overtly threatened in writing, any claims against any
of Northeast Plans or any fiduciary thereof (other than claims for benefits made
in the ordinary course).
5.19 Certain Business Matters. Except as disclosed in Schedule 5.19
hereto, (a) neither Northeast nor the Stockholders with respect to the Business
is a party to or bound by any distributorship, dealership, sales agency,
franchise or similar agreement which relates to the sale or distribution of any
of the products and services of the business of Northeast; (b) Northeast has no
sole-source supplier of significant goods or services (other than utilities)
with respect to which practical alternative sources are not available on
comparable terms and conditions; (c) there are no pending, or to the knowledge
of Northeast or the Stockholders, overtly threatened in writing, labor
negotiations, work stoppages or work slowdowns involving or affecting the
business of Northeast, and, to the knowledge of Northeast and the Stockholders,
no union representation questions exist, and there are no organizing activities,
in respect of any of the employees of Northeast, (d) the product and service
assurances, warranties or guarantees, if any, given by Northeast or by which
Northeast is bound (complete and correct copies or descriptions of which have
heretofore been delivered by Northeast to Oak Tree and the Purchaser) entail no
greater obligations than are customary in the business of Northeast; (e) neither
Northeast (nor the Stockholders with respect to the Business) is a party to, or
bound by, any agreement which limits its freedom to compete in any line of
business or with any person, or which is otherwise materially burdensome to it;
and (f) to the knowledge of Northeast and the Stockholders, Northeast is not a
party to, or bound by, any agreement in which any officer, principle or key
employee, agent, consultant, director or stockholder of Northeast or the
Stockholders (or any affiliate of any such person) has, or had when made, a
direct or indirect material interest.
5.20 Certain Contracts. Schedule 5.20 hereto contains a complete and
correct list of all contracts, commitments, obligations and understandings which
are not set forth in any other Schedule to this Agreement and to which Northeast
is a party or otherwise bound, except for each of those which (a) was made in
the ordinary course of business, and (b) either (1) is terminable by Northeast
without liability, expense or other obligation on 30 days' notice or less, or
(2) may be anticipated to involve aggregate payments to or by Northeast of
$25,000 (or the equivalent) or less calculated over the full term thereof, and
(c) is not otherwise material to the business of Northeast. Complete and correct
copies of all contracts, commitments, obligations and undertakings set forth on
any of the Schedules delivered pursuant to this Agreement have been furnished by
Northeast and the Stockholders to the Purchaser and Oak Tree, and except as
expressly stated on the Schedule on which they are set forth, (a) each of them
is in full force and
13
effect, no person or entity which is a party thereto or otherwise bound thereby
is in default thereunder, and, to the knowledge of Northeast and the
Stockholders, no event, occurrence, condition or act exists which does (or which
with the giving of notice or the lapse of time or both would) give rise to a
default or right of cancellation, acceleration or loss of contractual benefits
thereunder; (b) there has been no threatened cancellations thereof, and there
are no outstanding disputes thereunder; and (c) none of them is materially
burdensome to Northeast.
5.21 Approvals. Schedule 5.21 hereto, which contains a complete and
correct list of all governmental and administrative consents, permits,
appointments, approvals, licenses, certificates and franchises which are
necessary for the operation of Northeast, all of which have been duly obtained
and are in full force and effect.
5.22 Customers and Suppliers. Schedule 5.22 hereto contains a complete and
correct list setting forth, with respect to the fiscal year ended December 31,
1998: (a) if applicable the 10 largest customers or clients of the business of
Northeast and the amount for which each such customer was invoiced, and (b) the
10 largest suppliers to Northeast and the amount of goods and services purchased
from each such supplier during Northeast's last fiscal year. To the knowledge of
Northeast and the Stockholders, (i) there has been no material adverse change in
the business relationship between Northeast and any such customer or supplier,
and (ii) such suppliers and customers will continue their respective
relationships with Northeast after the Closing Date on substantially the same
basis as now exists.
5.23 Business Practices and Commitments. Schedule 5.23 hereto sets forth a
complete and accurate summary description of (a) the following practices and
obligations of Northeast: rebate and volume discount practices and obligations,
(b) allowance and customer return practices and obligations, and (c) warranty
practices and obligations.
5.24 Brokers. No agent, broker, person, or firm acting on behalf of
Northeast or the Stockholders, or under its authority, is or will be entitled to
a financial advisory fee, brokerage commission or other like payment in
connection the execution and delivery of this Agreement or any of the
transactions contemplated hereby.
5.25 Information as to Northeast and the Stockholders. None of the
representations, warranties or statements made by Northeast or the Stockholders
in this Agreement, any Schedule hereto or in any other agreement or instrument
executed and delivered by or on behalf of either of them pursuant hereto
contains or will contain an untrue statement of a material fact, or omits or
will omit to state any material fact necessary to make the statements therein
contained in light of the circumstances under which they were made not
misleading.
5.26 Insurance. To Northeast's Knowledge, Northeast has in full force and
effect policies of insurance of the type and in amounts providing protection for
Northeast consistent with Northeast's belief of sound business practices and
prudent risk management applicable to businesses of the size and nature of
Northeast. Schedule 5.26 will constitute a true and complete description of (i)
all of the policies in force and effect in respect of Northeast (the "Northeast
Policies"); (ii) the coverage and limits on Northeast Policies; and (iii) all
known current claims under any of Northeast Policies. To Northeast's Knowledge,
all of Northeast Policies are in full force and effect and Northeast has not
received any notice of cancellation in respect of such
14
insurance coverage under Northeast Policies. To Northeast's Knowledge, all
premiums due and payable in respect of Northeast Policies have been paid or
payment thereof has been duly provided for. There are no pending or, to
Northeast's Knowledge, threatened terminations or premium increases with respect
to any of Northeast Policies and, to Northeast's Knowledge, Northeast is in
compliance, in all material respects with all conditions contained therein. Also
set forth in Schedule 5.26 are, to Northeast's Knowledge, all current claims
pending against the Physicians or the Practices.
6
REPRESENTATIONS AND WARRANTIES
OF PURCHASER AND OAK TREE
In order to induce Northeast and Stockholders to enter into this Agreement
and to consummate the transactions contemplated by this Agreement, each of the
Purchaser and Oak Tree hereby represents and warrants to Northeast and the
Stockholders as follows:
6.1 Organization, Authority, Qualification. Each of Oak Tree and the
Purchaser is a corporation duly incorporated validly existing and in good
standing under the laws of the state of its incorporation. Each of Oak Tree and
the Purchaser: (i) has full power and authority to own and operate its
properties and assets and to conduct and carry on its business as it is now
being conducted; (ii) is duly licensed or qualified to transact or conduct
business and is in good standing, in each jurisdiction in which the ownership or
lease of real property or the conduct of its business requires it to be so
licensed, authorized or qualified and where its failure to be so qualified would
not have a Material Adverse Effect; and (iii) has all material governmental
licenses, certifications, permits, approvals and other authorizations necessary
to own or lease its properties and assets and carry on its business as it is now
being conducted. The Purchaser is a wholly owned direct subsidiary of Oak Tree.
6.2 Authorization. Each of Oak Tree and the Purchaser has full corporate
power, ability and authority to execute and deliver this Agreement and the
Related Agreements to which it is a party, to perform its obligations under, and
to consummate the transactions contemplated by, this Agreement and the Related
Agreements to which it is a party. This Agreement has been duly and validly
executed and delivered by each of Oak Tree and the Purchaser, and constitutes,
and the Related Agreements when executed shall constitute, its legal, valid and
binding obligations, enforceable against each of them in accordance with its
terms except as the same shall be limited by the effect of bankruptcy,
insolvency, fraudulent transfer and similar laws affecting creditor's rights in
general or by the effect of general principles of equity (whether applied in a
proceeding at law or in equity) and the discretion of the court in which such
proceeding is brought. The Board of Directors of each of the Purchaser and Oak
Tree have approved the execution, delivery and performance of this Agreement and
the Related Agreements to which Purchaser or Oak Tree is a party, and the
consummation of the transactions contemplated by each of them.
6.3 No Violation. The execution, delivery and performance of this
Agreement by each of Oak Tree and the Purchaser does not, and the consummation
by each of Oak Tree and the Purchaser of the transactions contemplated hereby
will not, and the compliance by each of Oak
15
Tree and the Purchaser with the provisions of this Agreement will not, (i)
conflict with or violate any provision of its certificate of incorporation or
bylaws, (ii) with or without notice or the passage of time or both, constitute,
give rise or result in the breach, default or event of default under, or
violation of any obligation under, or in the termination or acceleration of or
entitle any party to terminate or accelerate, or result in the imposition of any
lien upon or the creation of a security interest or encumbrance in or upon any
of its assets, business or properties pursuant to, any note, bond, mortgage,
indenture, deed, license, franchise, permit, lease, contract, agreement or other
instrument, commitment or obligation to which it is a party or by which it or
any of its assets are bound or subject, and will not violate or conflict with
any other material restriction of any kind or character to which the Purchaser
or Oak Tree, or any of its properties or assets, are subject, (iii) violate any
order, writ, injunction, decree, judgment or ruling of any court or governmental
authority applicable to it, or (iv) violate any statute, law, rule or regulation
applicable to it.
6.4 [Intentionally Omitted]
6.5 The Stock Purchase Price Shares and Price Protection Shares. The
Shares of Oak Tree, when issued, will be duly validly issued and outstanding,
fully paid and non-assessable, free and clear of adverse claims, liens and other
encumbrances created by Oak Tree.
6.6 [Intentionally Omitted]
6.7 Capitalization. The authorized capital stock of Oak Tree consists of
_____ shares of Preferred Stock, par value $_____ per share, of which _____ are
issued and outstanding, _____ shares are issued but not outstanding, and _____
shares are authorized and unissued and _____ shares of Common Stock, par value
$_________ per share, of which _____ shares are issued and outstanding, _____
shares are issued but not outstanding, and _____ shares are authorized and
unissued. All issued shares of Oak Tree's and Purchaser's capital stock have
been duly and validly issued and are fully paid and non-assessable. Except as
may be disclosed on Schedule 6.7 and as provided for in this Agreement, there
are no outstanding options, warrants, rights, puts, calls, commitments,
conversion rights, plans or other agreements of any character to which Oak Tree
or Purchaser is a party or otherwise bound which provide for the acquisition,
disposition or issuance of any issued but not outstanding, outstanding, or
authorized and unissued shares of capital stock of Oak Tree or Purchaser. There
is no personal liability, and there are no preemptive or similar rights,
attached to Oak Tree's or Purchaser's capital stock, other than as contemplated
by this Agreement.
6.8 Interests in Other Entities. Except as may be disclosed on Schedule
6.8 hereto, Oak Tree does not (A) own, directly or indirectly, of record or
beneficially, any shares of voting stock or other equity securities of any other
corporation other than the Purchaser, (B) have any ownership interest, direct or
indirect, of record or beneficially, in any unincorporated entity, or (C) have
any obligation, direct or indirect, present or
16
contingent, (1) to purchase or subscribe for any interest in, advance or loan
monies to, or in any way make investments in, any person or entity, or (2) to
share any profits or capital investments or both. Except as may be disclosed on
Schedule 6.8 hereto, Purchaser does not (A) own, directly or indirectly, of
record or beneficially, any shares of voting stock or other equity securities of
any other corporation, (B) have any ownership interest, direct or indirect, of
record or beneficially, in any unincorporated entity, or (C) have any
obligation, direct or indirect, present or contingent, (1) to purchase or
subscribe for any interest in, advance or loan monies to, or in any way make
investments in, any person or entity, or (2) to share any profits or capital
investments or both.
6.9 Financial Statements. Oak Tree has heretofore made available to
Northeast and the Stockholders true and complete copies of its annual report on
Form 10-KSB for its most recently completed fiscal year as filed with the United
States Securities and Exchange Commission ("SEC"), all reports on Forms 10-QSB
and 8-K filed with the SEC since the date such annual report was filed with the
SEC and the most recent registration statement under the Securities Act of 1933
filed by Oak Tree with the SEC, all of which reports contain in all material
respects the information required to be included therein under the rules and
regulations of the SEC. Such financial statements were prepared in accordance
with generally accepted accounting principles ("GAAP") consistently applied, and
present fairly, in all material respects, the consolidated financial position of
Oak Tree and its subsidiaries as at the dates thereof and the consolidated
results of operations and cash flows for the periods indicated, except that the
aforementioned unaudited financial statements are subject to normal recurring
adjustments which might be required as a result of year-end audit. The books and
records of Oak Tree and its subsidiaries, including the Purchaser are in all
material respects complete and correct, have been maintained in accordance with
good business practices, and accurately reflect the basis for the consolidated
and consolidating financial condition of Oak Tree and its subsidiaries as set
forth in the aforementioned financial statements.
6.10 Absence of Undisclosed Liabilities. Except as set forth on Schedule
6.10, neither Oak Tree nor the Purchaser has any liabilities or obligations of
any nature whatsoever, whether accrued, absolute, contingent or otherwise, which
have not been (i) in the case of liabilities and obligations of a type
customarily reflected on a corporate balance sheet prepared in accordance with
GAAP, set forth on their respective balance sheets as of February 28, 1999 (the
"Balance Sheets" and such date is hereinafter called the "Oak Tree Balance Sheet
Date") or (ii) in the case of other types of liabilities and obligations,
described in any of the Schedules delivered by Oak Tree and/or Purchaser
pursuant hereto or omitted from such Schedules in accordance with the terms of
this Agreement, or (iii) incurred, consistent with past practice, in the
ordinary course of business since the Oak Tree Balance Sheet Date (in the case
of liabilities and obligations of the type referred to in clause (i) above).
6.11 Properties. Each of Oak Tree and the Purchaser own or have the right
to use all listed on their respective Balance Sheets or acquired since the Oak
Tree Balance Sheet Date, free and clear of all mortgages, liens, pledges,
charges or encumbrances of any nature whatsoever, except for those which are
described in the notes to such Balance Sheets and Schedule 6.11 hereto,
excluding any assets disposed of in the ordinary course of business since the
Balance Sheet Date. All plants, structures, machinery and equipment which are
material to the business, operations or condition (financial or otherwise) of
Oak Tree, on a consolidated basis, and the Purchaser are in substantially
operating condition, and are suitable for the purposes for which they are used;
and none of such plants, structures, machinery or equipment are in need of
maintenance or repairs, except for ordinary, routine maintenance and repairs
which are not substantial in nature or cost.
6.12 [Intentionally Omitted]
17
6.13 Absence of Changes. Since the Oak Tree Balance Sheet Date, there has
not been (i) any Material Adverse Change in the condition (financial or
otherwise), assets, liabilities, business or results of operations of Oak Tree
or the Purchaser (including, without limitation, any such Material Adverse
Change resulting from damage, destruction or other casualty loss, whether or not
covered by insurance), (ii) any waiver by Oak Tree or the Purchaser of any
right, or cancellation of any debt or claim, of substantial value, (iii) any
declaration, setting aside or payment of any dividend or other distribution or
payment in respect of the capital stock of Oak Tree or the Purchaser, (iv) any
change in any of the arrangements which are referred to in Section 6.17 hereof
or any transactions of the type which is referred to in clause (f) of Section
6.18 hereof, or (v) any change in the accounting principles or methods which are
utilized by Oak Tree or the Purchaser.
6.14 Litigation. Other than as set forth in Schedule 6.14 hereto, there
are no suits or actions, or administrative, arbitration or other proceedings or
governmental investigations, pending or, to the knowledge of Oak Tree and the
Purchaser, threatened, against or relating to Oak Tree or the Purchaser or their
respective business and assets. There are no judgments, orders, stipulations,
injunctions, decrees or awards in effect which relate to Oak Tree (individually
or on a consolidated basis) and/or the Purchaser or their respective businesses,
the effect of which is to limit, restrict, regulate, enjoin or prohibit any
business practice in any area, or the acquisition of any properties, assets or
businesses, or otherwise materially adverse to their respective businesses
assets.
6.15 No Violation of Law. Neither Oak Tree nor the Purchaser is engaging
in any activity or omitting to take any action as a result of which (a) it is in
violation in any material respect of any law, rule, regulation, zoning or other
ordinance, statute, order, injunction or decree, or any other requirement of any
court or other governmental authority, applicable to it (individually or on a
consolidated basis), its Business or assets, including, but not limited to,
those relating to: healthcare (including Medicare and Medicaid); occupational
safety and health; environmental and ecological protection (e.g., the use,
storage, handling, transport or disposal of pollutants, contaminants or
hazardous or toxic materials or wastes, and the exposure of persons thereto);
business practices and operations (including federal and state anti-kickback
laws and regulations), labor practices; employee benefits; and zoning and other
land use, and (b) which would have a Material Adverse Effect.
6.16 Tax Matters. Except as disclosed on Schedule 6.16, each of Oak Tree
and the Purchaser has filed with the appropriate governmental agencies all tax
returns and reports required to be filed by it, and has paid in full or made
adequate provision for the payment of, all material taxes, interest, penalties,
assessments and deficiencies shown to be due or claimed to be due on such tax
returns and reports. The respective provisions for taxes which are set forth on
the Balance Sheets are adequate for all accrued and unpaid taxes of Oak Tree
(individually and on a consolidated basis) and the Purchaser as of the Oak Tree
Balance Sheet Date, whether (A) incurred in respect of or measured by income of
Oak Tree or the Purchaser for any prior periods, or (B) arising out of
transactions entered into, or any state of facts existing, on or prior to that
date. The provisions for taxes which are set forth on the respective books of
account of Oak Tree and the Purchaser are adequate for all taxes which accrued
after the Oak Tree Balance Sheet Date. Neither Oak Tree nor the Purchaser has
executed or filed with any taxing authority any agreement extending the period
for the assessment or collection of any taxes, and is not a party to
18
any pending or, to the best of the knowledge of Oak Tree and the Purchaser,
overtly threatened in writing, action or proceeding by any governmental
authority for the assessment or collection of income or other taxes. The United
States federal income tax returns of Oak Tree and the Purchaser have not been
examined by the Internal Revenue Service.
6.17 Employee Arrangements. Schedule 6.17 hereto contains a complete and
correct list and summary description of all (i) union, collective bargaining,
employment, management, termination and consulting agreements to which Oak Tree
or the Purchaser is a party or otherwise bound, and (ii) compensation plans and
arrangements; bonus and incentive plans and arrangements; deferred compensation
plans and arrangements; pension and retirement plans and arrangements;
profit-sharing and thrift plans and arrangements; stock purchase and stock
option plans and arrangements; hospitalization and other life, health or
disability insurance or reimbursement programs; holiday, sick leave, severance,
vacation, tuition reimbursement, personal loan and product purchase discount
policies and arrangements; and other plans or arrangements providing for
benefits for employees of Oak Tree, Oak Tree and its subsidiaries and the
Purchaser. Such Schedule also lists the names and compensation of all employees
of Oak Tree or the Purchaser whose earnings during the last fiscal year was
$50,000 or more (including bonuses and other incentive compensation), and all
employees who are expected to receive at least said amount in respect of the
present year.
6.18 ERISA.
(a) Schedule 6.18 hereto lists each "employee pension benefit plan"
(collectively called "Oak Tree Pension Plans" and severally called "Oak Tree
Pension Plan"), as such term is defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and each "employee
welfare benefit plan" (collectively called "Oak Tree Welfare Plans" and
severally called "Oak Tree Welfare Plan") as such term is defined in Section
3(1) of ERISA, which is maintained by Oak Tree or the Purchaser to which it
contributes or is obligated or required to contribute. The Oak Tree Pension
Plans and Oak Tree Welfare Plans are hereinafter sometimes collectively referred
to as the "Oak Tree Plans" and severally referred to as an "Oak Tree Plan".
(b) Each Oak Tree Pension Plan and the trust (if any) forming a part
thereof has been determined by the IRS to be qualified under Section 401(a) of
the Code, and is exempt from taxation under Section 501(a) of the Code, and
nothing has occurred since the date of such determination which would adversely
affect such qualification.
(c) Oak Tree and the Purchaser will deliver to Northeast and the
Stockholders complete and correct copies of (i) the Oak Tree Plans, and all
related trust agreements, (ii) all written interpretations and summary plan
descriptions relating thereto, (iii) the two most recent annual reports (Form
5500 Series) and accompanying schedules, which were prepared in connection with
each Oak Tree Plan, (iii) all IRS determination letters relating to the Oak Tree
Plans, and (iv) the two most recent actuarial evaluation reports which were
prepared in connection with any of the Oak Tree Plans.
(d) None of Oak Tree, the Purchaser, any of the Oak Tree Plans, any
trust created thereunder, or any trustee or administrator thereof has engaged in
a transaction which
19
would subject Oak Tree, the Purchaser or any of the Oak Tree Plans to the tax on
prohibited transactions imposed by Section 4975 of the Code or to a civil
penalty assessed pursuant to Section 502(i) of ERISA.
(e) None of the Oak Tree Pension Plans has incurred any "accumulated
funding deficiency", as such term is defined in Section 302 of ERISA and Section
412 of the Code, whether or not waived.
(f) Neither Oak Tree nor the Purchaser has incurred, or is expected
to incur, directly or indirectly, any liability to the Pension Benefit Guaranty
Corporation (the "PBGC") with respect to any Oak Tree Pension Plan. The PBGC has
not instituted proceedings to terminate any Oak Tree Pension Plan, nor has it
notified Oak Tree or the Purchaser, either formally or informally, of its
intention to institute any such proceedings.
(g) There have not been, with respect to any of the Oak Tree Plans,
any "reportable events", as such term is defined in Section 4043(b) of ERISA.
(h) Neither Oak Tree nor the Purchaser has ever maintained or
contributed to, or been obligated or required to contribute to, a "multiemployer
plan", as such term is defined in Section 3(37) of ERISA.
(i) Each of Oak Tree and the Purchaser has paid in full all amounts
which were required to have been paid by it on or prior to the date hereof as
contributions to any of the Oak Tree Pension Plans. The current value of all
accrued benefits under each of the Oak Tree Pension Plans did not, as of the
latest valuation date thereof, exceed the then current value of the assets of
such Oak Tree Pension Plan allocable to such accrued benefits, based upon the
actuarial assumptions then being utilized with respect thereto.
(j) There is not pending, and to the knowledge of Oak Tree and the
Purchaser there is not overtly threatened in writing, any claims against any of
the Oak Tree Plans or any fiduciary thereof (other than claims for benefits made
in the ordinary course).
6.19 Certain Business Matters. Except as disclosed in Schedule 6.19
hereto, (a) neither Oak Tree nor the Purchaser is a party to or bound by any
distributorship, dealership, sales agency, franchise or similar agreement which
relates to the sale or distribution of any of the products and services of the
business of Oak Tree and its subsidiaries (on a consolidated basis) or the
Purchaser; (b) neither Oak Tree nor the Purchaser has a sole-source supplier of
significant goods or services (other than utilities) with respect to which
practical alternative sources are not available on comparable terms and
conditions; (c) there are no pending, or to the knowledge of Oak Tree or the
Purchaser, overtly threatened in writing, labor negotiations, work stoppages or
work slowdowns involving or affecting the business of Oak Tree and its
subsidiaries (on a consolidated basis) or the Purchaser, and, to the knowledge
of Oak Tree and the Purchaser, no union representation questions exist, and
there are no organizing activities, in respect of any of the employees of Oak
Tree and its subsidiaries (on a consolidated basis) or the Purchaser, (d) the
product and service assurances, warranties or guarantees, if any, given by Oak
Tree or the Purchaser or by which each is bound (complete and correct copies or
descriptions of which have heretofore been or shall be delivered by Oak Tree and
the Purchaser to Northeast and the
20
Stockholders) entail no greater obligations than are customary in the business
of Oak Tree or the Purchaser; (e) neither Oak Tree nor the Purchaser is a party
to, or bound by, any agreement which limits its freedom to compete in any line
of business or with any person, or which is otherwise materially burdensome to
it; and (f) to the knowledge of Oak Tree and the Purchaser, neither Oak Tree nor
the Purchaser is a party to, or bound by, any agreement in which any officer,
principle or key employee, agent, consultant, director or stockholder of Oak
Tree (individually or on a consolidated basis) or the Purchaser (or any
affiliate of any such person) has, or had when made, a direct or indirect
material interest.
6.20 Certain Contracts. Schedule 6.20 hereto contains a complete and
correct list of all contracts, commitments, obligations and understandings which
are not set forth in any other Schedule to this Agreement and to which Oak Tree
(individually or on a consolidated basis) or the Purchaser is a party or
otherwise bound, except for each of those which (a) was made in the ordinary
course of business, and (b) either (1) is terminable by Oak Tree or the
Purchaser without liability, expense or other obligation on 30 days' notice or
less, or (2) may be anticipated to involve aggregate payments to or by Oak Tree
or the Purchaser of $25,000 (or the equivalent) or less calculated over the full
term thereof, and (c) is not otherwise material to the business of Oak Tree
(individually or on a consolidated basis), or the Purchaser. Complete and
correct copies of all contracts, commitments, obligations and undertakings set
forth on any of the Schedules delivered pursuant to this Agreement have been or
will be furnished by Oak Tree and the Purchaser to Northeast and the
Stockholders, and except as expressly stated on the Schedule on which they are
set forth, (a) each of them is in full force and effect, no person or entity
which is a party thereto or otherwise bound thereby is in default thereunder,
and, to the knowledge of Oak Tree and the Purchaser, no event, occurrence,
condition or act exists which does (or which with the giving of notice or the
lapse of time or both would) give rise to a default or right of cancellation,
acceleration or loss of contractual benefits thereunder; (b) there has been no
threatened cancellations thereof, and there are no outstanding disputes
thereunder; and (c) none of them is materially burdensome to Oak Tree
(individually or on a consolidated basis) or the Purchaser.
6.21 Approvals. Schedule 6.21 hereto, which contains a complete and
correct list of all governmental and administrative consents, permits,
appointments, approvals, licenses, certificates and franchises which are
necessary for the operation of the Oak Tree (individually and on a consolidated
basis with its subsidiaries) or Purchaser, all of which have been duly obtained
and are in full force and effect.
6.22 Customers and Suppliers. Schedule 6.22 hereto contains a complete and
correct list setting forth, with respect to the fiscal year ended May 30, 1998
and the eleven month period ended February 28, 1999: (a) if applicable the 10
largest customers or clients of the business of Oak Tree (individually and on a
consolidated basis with its subsidiaries) or the Purchaser and the amount for
which each such customer was invoiced, and (b) the 10 largest suppliers to Oak
Tree (individually and on a consolidated basis with its subsidiaries) or the
Purchaser and the amount of goods and services purchased from each such supplier
during Oak Tree's last fiscal year. To the knowledge of Oak Tree and the
Purchaser, (i) there has been no material adverse change in the business
relationship between Oak Tree and the Purchaser and any such customer or
supplier, and (ii) such suppliers and customers will continue their respective
relationships with Oak Tree
21
(individually and on a consolidated basis with its subsidiaries) or the
Purchaser after the Closing Date on substantially the same basis as now exists.
6.23 Business Practices and Commitments. Schedule 6.23 hereto sets forth a
complete and accurate summary description of (a) the following practices and
obligations of Oak Tree (individually and on a consolidated basis with its
subsidiaries) and of the Purchaser: rebate and volume discount practices and
obligations, (b) allowance and customer return practices and obligations, and
(c) warranty practices and obligations.
6.24 Brokers. No agent, broker, person, or firm acting on behalf of Oak
Tree or the Purchaser, or under its authority, is or will be entitled to a
financial advisory fee, brokerage commission or other like payment in connection
the execution and delivery of this Agreement or any of the transactions
contemplated hereby.
6.25 Information as to Oak Tree and the Purchaser. None of the
representations, warranties or statements made by Oak Tree or the Purchaser in
this Agreement, any Schedule hereto or in any other agreement or instrument
executed and delivered by or on behalf of either of them pursuant hereto
contains or will contain an untrue statement of a material fact, or omits or
will omit to state any material fact necessary to make the statements therein
contained in light of the circumstances under which they were made not
misleading.
6.26 Issuance of Securities. Oak Tree has the requisite corporate power
and authority to issue the Shares of Oak Tree. The Shares of Oak Tree have been
duly authorized for issuance and all necessary corporate action has been taken
by Oak Tree in accordance with the terms of this Agreement. The Shares of Oak
Tree, (in the case of the Price Protection Shares, upon due exercise by
Northeast and its designees of their rights under Article 3 of this Agreement)
will be validly issued, fully paid and non-assessable. No holder of any Shares
of Oak Tree will be subject to personal liability by reason of being such a
holder, and the issuance of such shares upon conversion, purchase or other
issuance will not be subject to preemptive or other similar rights of any
security holder of Oak Tree created by Oak Tree or Purchaser and will be duly
authorized, validly issued and outstanding, fully paid and non-assessable.
During the past six years, all Common Stock issued by Oak Tree has been issued
in compliance in all material respects with the federal securities laws
applicable to it.
6.27 Insurance. To Purchaser's Knowledge, each of the Purchaser and Oak
Tree has in full force and effect policies of insurance of the type and in
amounts providing protection for the Purchaser and Oak Tree consistent with the
Purchaser's and Oak Tree's belief of sound business practices and prudent risk
management applicable to businesses of the size and nature of the Purchaser and
Oak Tree. Schedule 6.27 will constitute a true and complete description of (i)
all of the policies in force and effect in respect of the Purchaser and Oak Tree
(the "Purchaser Policies"); (ii) the coverage and limits on the Purchaser
Policies; and (iii) all known current claims under any of the Purchaser
Policies. To Purchaser's Knowledge, all of the Purchaser Policies are in full
force and effect and neither Purchaser or Oak Tree has received any notice of
cancellation in respect of such insurance coverage under the Purchaser Policies.
To Purchaser's Knowledge, all premiums due and payable in respect of the
Purchaser Policies have been paid or payment thereof has been duly provided for.
There are no pending or, to Purchaser's Knowledge, threatened terminations or
premium increases with respect to any of the Purchaser Policies and,
22
to Purchaser's Knowledge, the Purchaser and Oak Tree is in compliance, in all
material respects with all conditions contained therein.
7
CONDITIONS TO OBLIGATIONS OF PURCHASER AND OAK TREE
The obligations of Purchaser and Oak Tree under this Agreement are subject
to satisfaction of the following conditions at or prior to Closing, any of which
may be waived by Purchaser in writing:
7.1 Correctness of Representations and Warranties. All representations and
warranties of Northeast and the Stockholders contained in this Agreement shall
be true and complete in all material respects on the Closing Date, and a
certificate to that effect shall be delivered by Northeast to Purchaser.
7.2 Instruments of Conveyance. Stockholder Representative shall have
delivered to Purchaser the stock certificates representing the Stock, the stock
powers and such other Instruments of Conveyance and consents and waivers by
others, necessary or appropriate to transfer to and effectively vest in
Purchaser all right, title and interest of the Stockholders in and to the Stock
as contemplated by this Agreement in proper statutory form for recording if such
recording is necessary or appropriate, and certified copies of all corporate
actions taken by Northeast, in respect of this Agreement and the transactions
contemplated by this Agreement.
7.3 Delivery of Documents. In addition to the Instruments of Conveyance
described above, all of the documents to be executed and delivered to Purchaser
at or prior to the Closing pursuant hereto as provided in Section 4 shall be so
delivered.
7.4 Performance of Covenants. Each of Northeast and the Stockholders shall
have performed all of the covenants and agreements to be performed by Northeast
and the Stockholders hereunder at or prior to the Closing, and a certificate to
that effect shall have been delivered by Northeast and Stockholders to Purchaser
and Oak Tree.
7.5 Consents and Approvals; Licenses and Permits. All consents and
approvals of governmental agencies and authorities legally required for the
consummation of the transactions contemplated hereby, and, to the extent
material to the operation of the Business by Purchaser after the Closing, all
consents of third parties required for the assignment of leases (or subleases
thereunder), contracts and agreements to be assigned hereunder, shall have been
obtained. In addition, all licenses, permits and approvals legally required for
the consummation of the transactions contemplated hereby and for the operation
of the businesses of Northeast and the Practices managed by Northeast subsequent
to the Closing, shall have been obtained.
7.6 Transactions Satisfactory. All transactions contemplated by this
Agreement shall be reasonably satisfactory in form and substance to Purchaser
and its counsel, as determined by Purchaser in its sole and absolute discretion,
and shall be in compliance with applicable rules, laws and regulations.
23
7.7 Investor Questionnaire. The Stockholders shall have completed,
executed and delivered, or shall cause to be completed, executed and delivered
by the appropriate persons or entities, executed and delivered to the Purchaser
Investor Questionnaires (each an "Investor Questionnaire" and collectively the
"Investor Questionnaires") in the form attached as Exhibit K hereto, and such
completed Investor Questionnaires shall be acceptable to the Purchaser in its
sole discretion, and such completed Investor Questionnaires shall be true and
correct in all material respects at and as of the Closing Date.
7.8 Effectiveness of Amended and Restated Practice Management Agreement.
The Amended and Restated Practice Management Agreement between each Practice and
Purchaser shall be in full force and effect at Closing. All conditions to be
satisfied by each Practice under the terms of the Amended and Restated Practice
Management Agreement shall have been satisfied by such Practice. All of the
representations and warranties of each Practice contained in the Amended and
Restated Practice Management Agreement shall be true and correct in all material
respects as of Closing Date. There shall not have occurred any breach or default
by Northeast or any Practice of their respective material obligations under the
Amended and Restated Practice Management Agreement which, if not cured, would
have a Material Adverse Effect.
7.9 Employment/Independent Contractor Agreements. Purchaser shall have
been provided copies of fully executed Employment Agreements or Independent
Contractor Agreements, as the case may be (the "Employment/Independent
Contractor Agreements") between the Physicians and each Practice listed on
Schedule B hereto.
7.10 No Material Adverse Change. There shall have been no Material Adverse
Change with respect to Northeast since December 31, 1998.
7.11 No Threatened or Pending Litigation. No suit, action or other
proceeding shall be pending or threatened in writing before any governmental
authority seeking to restrain the Purchaser or Oak Tree or prohibit the Closing
or seeking damages against the Purchaser, or Oak Tree, as a result of the
consummation of this Agreement.
7.12 Financial Statements. Purchaser shall have been provided with
Northeast Financials referenced in Section 5.9 hereof and any supplementary
unaudited financial statements contemplated by Section 10.11 hereof.
7.13 Note Offering. Purchaser or Oak Tree shall have received the proceeds
from the Note Offering.
7.14 Rule 14-f. Oak Tree shall have taken all action necessary to comply
with Rule 14f-1 under the securities laws.
24
8
CONDITIONS TO OBLIGATIONS OF STOCKHOLDERS
The obligations of the Stockholders under this Agreement are subject to
satisfaction of the following conditions at or prior to the Closing, any of
which may be waived by the Stockholder Representative in writing:
8.1 Payment of Purchase Price. Purchaser or Oak Tree shall have delivered
to Stockholder Representative the Cash Purchase Price and the documents required
to be delivered at Closing under Article 3 hereof.
8.2 Correctness of Representations and Warranties. All the representations
and warranties of Purchaser and Oak Tree contained in this Agreement shall be
true and complete in all material respects on the Closing Date and a certificate
to that effect shall have been delivered by Oak Tree and Purchaser to Northeast.
8.3 Delivery of Documents. All of the documents to be executed and
delivered to Stockholder Representative at or prior to the Closing pursuant
hereto as provided in Section 4 shall be so delivered.
8.4 Performance of Covenants. Purchaser and Oak Tree shall have performed
all of the covenants and agreements to be performed by Purchaser and Oak Tree
hereunder at or prior to the Closing and a certificate to that effect shall have
been delivered by Oak Tree and Purchaser to Northeast.
8.5 Consents and Approvals; Licenses and Permits. All consents and
approvals of governmental agencies and authorities legally required for the
consummation of the transactions contemplated hereby, and, to the extent
material to Purchaser's operation of the Business, all consents of third parties
required for the assignment of leases (or subleases thereunder), contracts and
agreements to be assigned hereunder or leasing or subleasing, shall have been
obtained. In addition, all licenses, permits and approvals legally required for
the consummation of the transactions contemplated hereby and for the operation
of the businesses of Northeast and the Practices managed by Northeast subsequent
to the Closing, shall have been obtained.
8.6 No Material Adverse Change. There shall have been no Material Adverse
Change with respect to Oak Tree since December 31, 1998.
8.7 Transactions Satisfactory. All transactions contemplated by this
Agreement shall be reasonably satisfactory in form and substance to Stockholder
Representative and its counsel, as determined by Stockholder Representative in
its sole and absolute discretion, and shall be in compliance with applicable
rules, laws and regulations.
25
9
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
9.1 Survival. All representations and warranties of the parties included
or provided for in this Agreement, including without limitation the Schedules
and Exhibits hereto, shall survive the Closing, irrespective of any
investigation at any time made by or on behalf of any other party, for a period
of 24 months following the Closing Date, except that any claim for breach of
representations and warranties contained in Section 5.16 (taxes) or fraud shall
survive until the applicable statute of limitations expires.
9.2 Indemnification by the Stockholders.
(a) General. Each of the Stockholders, jointly and severally, shall,
with respect to their Proportionate Share, indemnify, defend and hold harmless
Northeast, Purchaser and Oak Tree (including their officers, directors,
employees, agents, representatives and affiliates) from and against any and all
claims, losses, damages, liabilities, demands, assessments, judgments, costs and
expenses (including, without limitation, settlement costs and any reasonable
legal or other expenses for investigating, bringing or defending any actions or
threatened actions) incurred by Purchaser in connection with each and all of the
following:
(i) any misrepresentation or breach of any warranty made by
Northeast (or any of its officers or directors) or any Stockholder in this
Agreement or any Schedule, Exhibit, certificate or other instrument attached
hereto or delivered to Purchaser pursuant hereto;
(ii) the breach of any covenant, agreement or obligation of
Northeast or any Stockholder contained in this Agreement, any Schedule or any
certificate or agreement or instrument delivered to the Purchaser or Oak Tree by
Northeast or Stockholders pursuant hereto;
(iii) any misrepresentation contained in any written statement
or certificate furnished by any officer of Northeast or any Stockholder, in each
case pursuant to this Agreement or in connection with the transactions
contemplated by this Agreement;
(iv) any liability or obligation of, or claim against,
Purchaser of any kind or nature which arises out of or relates to operations by
Northeast at any time on or prior to the Closing Date, including, but not
limited to, the Excluded Liabilities;
(v) any liability or obligation of any kind or nature, which
arises out of, or relates to, any pension, retirement, profit sharing, deferred
compensation, bonus or other incentive plan, or any collective bargaining
agreement or other labor agreement, including single or multi-employer plans or
agreements, to which Northeast is a party or by which it is bound; and
(vi) any federal, foreign, state or local tax liability,
obligation or claim (including any such liability, obligation or claim arising
as a result of or with respect to the consummation of the transactions
contemplated by this Agreement) for periods ending on or before the Closing
Date.
26
(b) Claims for Indemnification. Whenever any claim shall arise for
indemnification under this Section 9.2, Purchaser or Oak Tree shall promptly
notify in writing the Stockholder Representative of the claim and, when known,
the facts constituting the basis for such claim. In the event of any claim for
indemnification hereunder resulting from or in connection with any claim or
legal proceeding by a person who is not a party to this Agreement ("Third Party
Claim"), such notice shall also specify, if known, the amount or an estimate of
the amount of the liability arising therefrom. Neither Oak Tree nor Purchaser
shall incur any expenses, or settle or compromise or enter into any binding
agreement to settle or compromise, or consent to entry of any judgment arising
from, any such claim or proceeding except in accordance with this Section 9.2.
Purchaser will give the Stockholder Representative prompt written notice of any
such claim and, with respect to any Third Party Claim, the Stockholders will
undertake the defense thereof by representatives of their own choosing
reasonably satisfactory to Purchaser. Purchaser shall have the right to
participate in any such defense of a Third Party Claim with advisory counsel of
its own choosing at its own expense. In the event the Stockholders, within a
reasonable time after notice of any such Third Party Claim, fails to defend,
Purchaser or any parent, subsidiary or affiliate of Purchaser will have the
right to undertake the defense, compromise or settlement of such Third Party
Claim on behalf of, and for the account of, the Stockholders, at the expense and
risk of the Stockholders. The Stockholders shall not, without Purchaser's
written consent, settle or compromise any such Third Party Claim or consent to
entry of any judgment which does not include as an unconditional term thereof
the giving by the claimant or the plaintiff to Purchaser and/or Purchaser's
parent, subsidiary or subsidiaries, or affiliate or affiliates, as the case may
be, an unconditional release from all liability in respect of such Third Party
Claim. The Purchaser and Oak Tree will cooperate with the Stockholders in
connection with the defense or settlement of such Third Party Claim.
Notwithstanding the foregoing, the Stockholders shall have the right to dispute
the issue of whether it is obligated hereunder to indemnify Purchaser with
respect to any particular Third Party Claim.
(c) Limitations on Indemnification. Notwithstanding anything to the
contrary set forth in this Agreement, the Purchaser's right to indemnification
under this Section 9.2 shall be limited as follows: (i) any claim for
indemnification must be asserted by written notice by a date which is not later
than 24 months following the Closing Date, except that, any claim based upon a
breach of the representations and warranties contained in Section 5.14 (Taxes)
or based upon fraud may be asserted until the applicable statute of limitations
has expired, and (ii) in no event shall any Stockholder be liable to Oak Tree
and/or the Purchaser for more than the actual amount of cash received by such
Stockholder from the Purchaser and Oak Tree pursuant to this Agreement.
(d) Sole Remedy. Indemnification and set off shall be sole and
exclusive remedies of Oak Tree and the Purchaser for redressing the breach by
Northeast and/or the Stockholders of any misrepresentation or the breach of any
warrants, covenant, condition or agreement of Northeast or the Stockholders set
forth herein in this Agreement or in any agreement, instrument or document
executed and delivered by Northeast or the Stockholders herewith.
27
9.3 Indemnification by Purchaser and Oak Tree.
(a) General. Purchaser and Oak Tree, jointly and severally, shall
indemnify, defend and hold harmless the Stockholders from and against any and
all claims, losses, damages, liabilities, demands, assessments, judgments,
costs, and expenses (including, without limitation, settlement costs and any
legal or other expenses for investigating, bringing or defending any actions or
threatened actions) incurred by any Stockholder in connection with each and all
of the following:
(i) any misrepresentation or breach of any warranty made by
Purchaser or Oak Tree or any of their officers or executive directors in this
Agreement or any Schedule, Exhibit, certificate or other instrument attached
hereto or delivered to Northeast or any Stockholder pursuant hereto;
(ii) the breach of any covenant, agreement or obligation of
Purchaser or Oak Tree contained in this Agreement, any Schedule or any
certificate or agreement or instrument delivered to Northeast or the
Stockholders pursuant hereto;
(iii) any misrepresentation contained in any statement or
certificate furnished by Purchaser or Oak Tree or any officer of Purchaser or
Oak Tree pursuant to this Agreement or in connection with the transactions
contemplated by this Agreement; and
(iv) any other liability or obligation of, or any claim for
damages of any kind or nature which arises out of or relates to the operation of
the Purchaser or Oak Tree at any time after the Closing Date, including, without
limitation, any federal, foreign, state or local tax liability, obligation or
claim of or against Purchaser or Oak Tree (except to the extent a portion of the
amount thereof is to be prorated to Northeast under the terms of this Agreement)
(including any such liability, obligation or claim arising as a result of or
with respect to the consummation of the transactions contemplated by this
Agreement) for periods ending after the Closing Date.
(b) Claims for Indemnification. Whenever any claim shall arise for
indemnification under this Section 9.3, Stockholder Representative shall
promptly notify in writing the Purchaser and Oak Tree of the claim and, when
known, the facts constituting the basis for such claim. In the event of any
Third Party Claim, such notice shall also specify, if known, the amount or an
estimate of the amount of the liability arising therefrom. No Stockholder shall
incur any expenses, or settle or compromise or enter into any binding agreement
to settle or compromise, or consent to entry of any judgment arising from, any
such claim or proceeding except in accordance with this Section 9.3. The
Stockholder Representative will give Purchaser and Oak Tree prompt written
notice of any such claim and, with respect to any Third Party Claim, Purchaser
or Oak Tree will undertake the defense thereof by representatives of its own
choosing reasonably satisfactory to the Stockholder Representative. The
Stockholders shall have the right to participate in any such defense of a Third
Party Claim with advisory counsel of its own choosing at its own expense. In the
event Purchaser or Oak Tree, within a reasonable time after notice of any such
Third Party Claim, fails to defend, the Stockholders will have the right to
undertake the defense, compromise or settlement of such Third Party Claim on
behalf of, and for the account of, Purchaser and Oak Tree, at the expense and
risk of Purchaser and Oak Tree. Purchaser and Oak Tree shall not, without the
written
28
consent of the Stockholder Representative, settle or compromise any such
Third Party Claim or consent to entry of any judgment which does not include as
an unconditional term thereof the giving by the claimant or the plaintiff to the
Stockholder Representative, an unconditional release from all liability in
respect of such Third Party Claim. The Stockholders will cooperate with Oak Tree
and the Purchaser in connection with the defense of settlement of such Third
Party Claim. Notwithstanding the foregoing, Purchaser and Oak Tree shall have
the right to dispute the issue of whether it is obligated hereunder to indemnify
the Stockholders with respect to any particular Third Party Claim.
(c) Limitations on Indemnification. Notwithstanding anything to the
contrary set forth in this Agreement, any Stockholder's right to indemnification
under this Section 9.3 shall be limited as follows: (i) any claim for
indemnification must be asserted by written notice by a date which is not later
than 24 months following the Closing Date, except that, any claim based upon a
breach of the representations and warranties contained in Section 6.14 (Taxes)
or based upon fraud may be asserted until the applicable statute of limitations
has expired, (ii) in no event shall Purchaser or Oak Tree be liable to the
Stockholders for more than the actual amount of cash paid by Oak Tree and/or the
Purchaser to the Stockholders pursuant to this Agreement, and (iii) any claim
relating to undisclosed liabilities of Oak Tree or Purchaser shall be satisfied
by the issuance of Additional Shares as set forth in Section 10.14 hereof.
(d) Sole Remedy. Indemnification shall be sole and exclusive
remedies of the Stockholders for redressing the breach by the Purchaser and/or
Oak Tree of any misrepresentation or the breach of any warrants, covenant,
condition or agreement of the Purchaser and/or Oak Tree set forth herein in this
Agreement or in any agreement, instrument or document executed and delivered by
the Purchaser and/or Oak Tree herewith.
10
COVENANTS OF PARTIES
The parties hereto hereby covenant and agree as follows:
10.1 Transfer Taxes. Each party hereto shall pay all such sales, transfer,
use, gross receipts, registration and similar taxes arising out of or in
connection with the transactions contemplated by this Agreement as are payable
by such party under applicable law; provided, that, such taxes, if any, imposed
upon Northeast shall be borne by the Stockholders.
10.2 Consents. Each of the parties hereto will use its commercially
reasonable efforts to obtain consents of all third parties and governmental
instrumentalities, agencies and authorities necessary to the consummation of the
transactions contemplated by this Agreement.
10.3 Public Announcements. Northeast and the Stockholders will consult
with the Purchaser before issuing any press releases or otherwise making any
public statements with respect to this Agreement and/or the transactions
contemplated herein and shall not issue any such press release or make any such
public statement without the prior written approval of the Purchaser, which
approval shall not be unreasonably withheld. The obligations of the Stockholders
under this Section 10.3 shall survive the termination of this Agreement.
29
10.4 Transactions Affecting Organization and Good Standing. Between the
date hereof and the Closing Date, neither Northeast, the Purchaser nor Oak Tree
will amend or otherwise change its articles of incorporation or bylaws, or other
organizational documents, except Oak Tree shall file the certificate of
designation relating to the Series A Preferred Stock, in form and substance
approved in writing by Northeast and its legal counsel, and Northeast, the
Purchaser and Oak Tree, as the case may be, will take all necessary actions to
keep in full force and effect its legal existence.
10.5 Conduct of Business Before the Closing. Between the date hereof and
the Closing Date, each of Northeast, the Stockholders (with respect to
Northeast), Purchaser and Oak Tree shall:
(a) (i) conduct its business diligently in the ordinary course of
business, (ii) retain in its employ all of its key employees and an adequate
employee work force in numbers and skills substantially as in effect on the date
hereof, and (iii) preserve its goodwill and relationships with physicians,
employees, third party payors, suppliers and patients and others having business
relations;
(b) except upon the prior written consent of Oak Tree or Northeast,
as the case may be, which consent shall not be unreasonably withheld, not: (i)
except in the ordinary course of business, sell, assign, lease or otherwise
transfer or dispose of any of its properties or assets, (ii) except in the
ordinary course of business, forgive or compromise any obligations of others or
claims against others, (iii) mortgage, pledge or subject any of the properties
or assets to a lien, charge or encumbrance of any kind, or (iv) in case of
Northeast or the Purchaser, permit a change in its ownership or control or, in
the case of Oak Tree, permit any change in control or, in the case of Northeast,
Purchaser or Oak Tree, grant any options, powers, warrants or rights which could
result in such a change of control or ownership.
(c) except upon the prior written consent of Oak Tree or Northeast,
as the case may be, which consent shall not be unreasonably withheld: (i) not
amend, renew or terminate any contract or agreement to which it is a party
(including, without limitation, any contract or agreement with any of the
Practices managed by Northeast) or enter into or become a party to any contract
or agreement under which the value of services to be performed by or for it or
the cost of goods and services to be sold to or by it under any one such
contract or agreement may exceed $50,000, (ii) not enter into or become a party
to any loan, letter of credit or other debt agreement (other than extensions of
credit in relation to purchases of inventory in the ordinary course of business
consistent with prior practices), or incur, assume or guaranty any obligation
for borrowed money, (iii) not compromise or settle any pending or threatened
litigation or claims against it for an amount in excess of $50,000, (iv) not
enter into any contracts or agreements to do anything prohibited under this
Section 10.5 and (v) perform all obligations under all contracts and agreements
to which Northeast is a party.
(d) continue in full force and effect its existing insurance
coverages.
(e) except upon the prior written consent of Oak Tree or Northeast,
as the case may be, not alter or amend, in any material respect, any employment,
consulting, non-competition or similar agreement, or increase the compensation
or rate of compensation or
30
benefits payable or to become payable to any of its directors, officers,
stockholders, employees or agents over the rate being paid to them at the date
hereof, except for increases required pursuant to a contract in existence at the
date hereof and listed on a schedule to this Agreement, and except for
promotions to fill vacancies arising after the date hereof in positions existing
on the date hereof.
(f) except upon the prior written consent of Oak Tree or Northeast,
as the case may be, enter into any contract, agreement or course of action which
may reasonably be expected materially to increase its aggregate amount of
liabilities.
(g) except upon the prior written consent of Oak Tree or Northeast,
as the case may be, not make any alteration in the manner of keeping its books,
accounts or records or in the accounting practices therein reflected.
(h) except upon the prior written consent of Oak Tree or Northeast,
as the case may be, not make any material change in its business, or enter into
any material transaction, which is not in the ordinary course of business.
10.6 Access and Information Prior to Closing. Each party shall have the
right to conduct due diligence following the execution hereof. Each party and
their respective directors, officers, employees and agents shall cooperate fully
with each other and their respective directors, officers, employees and agents
to ensure the prompt and complete availability of all records and information of
such party, of any nature whatsoever, that such party may request. Each party
shall, upon the request of the other party, provide written authorizations to
all parties having information regarding such party, authorizing them to release
such information to such party for review and/or copying, and directing them to
cooperate fully with such party. In addition, such party and its agents shall
have access to the facilities and properties of such party for the purposes of
inspection and survey.
10.7 Current Information. Each party will advise the other party in
writing, as soon as practicable but in no event later than the Closing, of: (i)
the occurrence of any event which renders any of the representations or
warranties of such party set forth herein inaccurate; and (ii) the failure of
such party to perform any of its covenants or agreements set forth herein.
Northeast will also provide to Purchaser promptly upon their becoming available
copies of all financial reports prepared by or for the conduct of the business
of Northeast prior to the Closing Date.
10.8 Preservation of the Assets. From the date hereof until the Closing
Date, each party will maintain the tangible assets in no worse condition, repair
and working order and all other Assets in substantially the same condition as
such Assets exist on the date hereof. With respect to all contract rights to be
assigned to Purchaser hereunder, Purchaser shall preserve the enforceability and
validity of each material contract with third parties, including specifically
any and all management agreements with the Practices.
10.9 Contracts/Compliance With Laws. With regard to any contracts or other
business arrangements to which Northeast is a party, the benefits of which are
to be transferred to Purchaser hereunder, and which may be, in the opinion of
qualified legal counsel selected by Purchaser, in violation of any state or
federal laws or regulations, Northeast shall promptly take
31
such actions as are necessary, in the reasonable mutual judgment of the parties
hereto, to amend such contracts or business arrangements so as to eliminate any
such violation and preserve the benefit of such contract or agreement for
Purchaser.
10.10 Exclusivity. Each of Northeast and the Stockholders will not, and
will cause their respective directors, officers, employees, financial advisors,
legal counsel, accountants and other agents and representatives (for purpose of
this Section 10.10 only, being referred to as "affiliates") not to initiate,
solicit or encourage, directly or indirectly, or take any other action to
facilitate any inquiries or the making of any proposal with respect to, engage
or participate in negotiations concerning, provide any nonpublic information or
data to or have any discussions with any person other than Purchaser or Oak Tree
relating to, any acquisition, exchange offer, merger, consolidation, acquisition
of beneficial ownership of or the right to vote securities of Northeast,
dissolution, business combination, purchase of all or any significant portion of
the assets or any division of, or any equity interest in, Northeast, or similar
transaction, other than the transactions contemplated under this Agreement (such
proposals, disclosures, negotiations, or transactions being referred to as
"Acquisition Proposals"). Each of Northeast and the Stockholders will notify
Purchaser within 24 hours orally and within 48 hours in writing if any such
Acquisition Proposal (including the terms thereof and identity of the persons
making such proposals) is received and furnish to Purchaser a copy of any
written proposal. The provisions of this Section 10.6 shall remain in effect
until the earlier of (x) the date this Agreement is terminated pursuant to
Article 11, and (y) the Closing.
10.11 Supplementary Financial Information. Within 25 days after the end of
each calendar month between the date of this Agreement and Closing, Northeast
shall provide to Purchaser unaudited financial statements (including at the
minimum income statement and balance sheet) for such month then ended that shall
present fairly the consolidated results of its operations at such date and for
the period covered thereby, all in accordance with the books and records of
Northeast and on a basis consistent with prior periods, in each case, certified
as true and correct in all material respects by its chief financial officer.
10.12 Filings; Other Actions. (a) The Purchaser and Oak Tree shall
cooperate to promptly prepare (and Northeast and the Stockholders shall
cooperate in such preparation) an Offering Memorandum (the "Offering
Memorandum") with respect to the Note Offering. Oak Tree shall use commercially
reasonable efforts to consummate the Note Offering at the earliest possible time
after preparation of Northeast Financials.
(b) Northeast and the Stockholders represent and warrant that none
of the information or documents supplied or to be supplied by it specifically
for inclusion in the Offering Memorandum, by exhibit or otherwise, will contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. Northeast
and Stockholders shall be entitled to review the Offering Memorandum prior to
the time it becomes final with respect to the information contained therein
relating to Northeast.
(c) Oak Tree and the Purchaser agree that none of the information
contained in Offering Memorandum (other than information concerning Northeast
and the Stockholders expressly provided by Northeast and the Stockholders at the
request of Oak Tree for inclusion
32
therein) will contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(d) Northeast and Stockholders shall furnish Oak Tree with all
information concerning themselves, their subsidiaries, if any, directors,
officers and stockholders and such other matters as may be reasonably requested
by Oak Tree in connection with the preparation of the Offering Memorandum, or
any other statement, filing, notice or application made by or on behalf of each
such party or any of its subsidiaries to any governmental entity in connection
with the transactions contemplated by the Other Agreements or this Agreement.
10.13 Restrictions. In consideration of the payment of the purchase price
referenced in Article 3 hereof, and in order to induce Purchaser to enter into
this Agreement and to consummate the transactions contemplated hereby, each of
Northeast and the Stockholders hereby covenants and agrees as follows:
(a) Each of the Stockholders agrees that, during the Non-Compete
Period, no Stockholder (including any affiliate thereof) will, directly or
indirectly, for itself or for any other Person, engage in or compete in, or
acquire or own in any manner any interest in any Person which is engaged in or
which competes in, the business conducted by Northeast within the Territory. For
a period of five years from the Closing Date, the Stockholders agree that,
without the prior written consent of Purchaser, the Stockholders and their
affiliates shall not hire, solicit or offer employment to any of its former
employees who become employees of any affiliated entity of the Purchaser
(including Northeast). These non-competition and non-solicitation provisions
shall be in addition to any similar provisions under any separate agreements
between any Stockholder and Purchaser or its affiliates. As used herein,
Non-Compete Period shall mean the lesser of (x) five years from the Closing
Date, and (y) the date which is 10 days from the date Oak Tree has received
written notice from the Stockholder Representative that the Stock Purchase Price
Shares have not been delivered to the Stockholders as required under this
Agreement, provided, that, any dispute regarding the delivery of the Stock
Purchase Price Shares shall be resolved in accordance with the following
procedures. In the event of any dispute, controversy or claim arising out of or
in connection with the delivery of the Stock Purchase Price Shares, which cannot
be amicably resolved between the parties within thirty (30) days following the
receipt of a notice of dispute by either party, shall be submitted before an
arbitration tribunal designated in accordance with the rules of the American
Arbitration Association (the "Rules") by three (3) arbitrators appointed in
accordance with the Rules then in force and effect. Any such arbitration shall
be held in New York, New York and shall be held pursuant to the laws of the
State of New York. The decision of any such arbitration tribunal shall be final
regarding any matters presented to the arbitrators. The costs of arbitration
shall be equally between the Stockholders and the Purchaser. The arbitrators
shall not be empowered to award punitive, exemplary and/or consequential damages
to any party.
(b) From and after Closing, no Stockholder shall disclose, to any
Person or entity, or make use of, without the authorization of Purchaser, any
non-public pricing strategies or records of Northeast, any proprietary data or
trade secrets owned by Northeast or any financial or other information about
Northeast; provided that the foregoing restrictions shall not apply to any
information which: (i) is or becomes publicly known through no negligent or
wrongful act
33
or omission on the part of the any Stockholder; (ii) is approved for release by
Purchaser; (iii) is required to be disclosed in accordance with applicable law,
(iv) is disclosed to such party's accountants and lawyers who shall keep such
information confidential, or (v) in connection with the performance of duties by
the Stockholders on behalf of Purchaser after the Closing.
(c) It is recognized and hereby acknowledged by the parties hereto
that a breach or violation by the Stockholders or their affiliates of any or all
of the covenants and agreements contained in this Section 10.3 may cause
irreparable harm and damage to Purchaser in a monetary amount which may be
virtually impossible to ascertain. As a result, each of the Stockholders
recognizes and hereby acknowledges that Purchaser shall be entitled to an
injunction from any court of competent jurisdiction enjoining and restraining
any breach or violation of any or all of the covenants and agreements contained
in this Agreement by the Stockholders and/or their respective associates,
affiliates, partners or agents, either directly or indirectly, and that such
right to injunction shall be cumulative and in addition to whatever other rights
or remedies Purchaser may possess hereunder, at law or in equity.
10.14 Trading Restrictions. Each of Northeast and the Stockholders
acknowledge that he, she or it is aware that the United States securities laws
prohibit persons who are in possession of material, non-public information
concerning an issuer (such as Oak Tree) from purchasing or selling securities of
such issuer and from communicating such information to any other person under
circumstance under which it is reasonably foreseeable that such person is likely
to purchase or sell such securities, and each of Northeast and the Stockholders
agrees to fully comply with such laws. This Section 10.14 shall survive the
termination of this Agreement.
10.15 Additional Shares. The Target Companies shall be entitled to be
issued additional shares of Oak Tree Common Stock (the "Additional Shares"),
rounded up to the nearest whole share and bearing the appropriate "restricted
stock legend" in an aggregate amount (to be apportioned among all of the Target
Companies) equal to the quotient of (x) Net Undisclosed Liabilities, divided by
(y) the lesser of (a) the average of the Closing Prices of the Oak Tree Common
Stock during each of the trading days in the five trading days prior to the date
of the issuance of such Additional Shares, and (b) the Specified Adjusted Price,
which shares shall be issued thirty months after the Closing Date. Within 15
days of the end of such thirty month period Oak Tree shall (a) deliver to
Stockholder Representative a copy of its computation of the amount of Additional
Shares, and (b) direct its transfer agent to deliver the Additional Shares to
the Stockholders.
10.16 Actions Necessary to Issue Shares. Subsequent to the Closing, Oak
Tree will take, and cause to be taken, all action, corporate or other, which may
be necessary or expedient to assure that (a) it has a sufficient number of
authorized and/or issued but not outstanding shares of Oak Tree Common Stock to
issue such shares of capital stock at the times and under the circumstances set
forth in this Agreement, as the same may be amended, modified, supplemented,
amended and restated, renewed and extended from time; (b) it has duly reserved
for issuance a sufficient number of shares of Oak Tree Common Stock at the times
and under the circumstances set forth in this Agreement; and (c) any shares of
Oak Tree Common Stock issued pursuant to this Agreement shall be duly listed on
or admitted for trading or quotation, subject to due notice of issuance, on the
exchange or market where shares of Oak Tree Common Stock is at the time traded
or quoted. Such action shall include, but shall not be limited to, calling a
special
34
meeting of the stockholders of Oak Tree to vote upon or submitting to its
stockholders at an annual meeting thereof (whichever is more expedient), a
proposal to amend its certificate of incorporation to increase the number of
authorized shares of Oak Tree Common Stock, prepare, file with the SEC and
circulate to stockholders a proxy statement, proxy cards and other proxy
solicitation materials on behalf of the management of Oak Tree to seek to obtain
the requisite number of votes to assure adoption of such proposal and convening
all requisite meetings of the board of directors of Oak Tree (or obtaining the
necessary written consent of directors) to take the necessary corporate action,
authorize and direct the taking of all actions and the expenditure of the
necessary funds to permit the performance by Oak Tree of its obligations under
this covenant.
10.17 Amendment to Certificate of Incorporation. Oak Tree shall, not less
than 30 days prior to the Closing Date, take all action necessary to amend its
Certificate of Incorporation, in substantially the form of the amendment
attached hereto as Exhibit L, to provide for a staggered Board of Directors,
such directors to serve for staggered three (3) year terms. Effective on the
Closing Date, the Board of Directors of Oak Tree shall increase the size of the
Board and fill the vacancies created by such increase, with the appointees of
Northeast Representative and as directed by Northeast Representative, the effect
of which shall result in the control of the Board of Oak Tree by the appointees
of Northeast Representative.
10.18 Reimbursement of Out-of-Pocket Expenses. At or prior to the Closing,
Oak Tree shall have reimbursed Xxxxxx Xxxxxx and Xxx Xxxx for all of the
Out-of-Pocket Expenses to be reimbursed by Oak Tree pursuant to the
Indemnification and Reimbursement Agreement of even date by and among Xxx Xxxx,
Xxxxxx Xxxxxx, Oak Tree and Nevada Minerals Corp.
11
TERMINATION
11.1 Termination. This Agreement may be terminated:
(a) By mutual written consent of Stockholder Representative and
Purchaser.
(b) By the Stockholder Representative or the Purchaser if the
Closing shall not have been consummated by the Termination Date, or such other
date mutually agreed to in writing by the Stockholder Representative and
Purchaser.
(c) By Purchaser if Northeast fails to deliver to Purchaser the
Schedules hereto in form and substance satisfactory to Purchaser prior to the
date on which Northeast Financials as described in Section 5.9 are delivered
hereunder.
(d) By Stockholder Representative if Purchaser fails to deliver to
Northeast the Schedules hereto in form and substance satisfactory to Northeast
prior to the date on which Northeast Financials as described in Section 5.9 are
delivered hereunder.
11.2 Effect of Termination. In the event of termination of this
Agreement as provided above, this Agreement shall forthwith become of no further
effect and, except for a termination resulting from a breach by a party of any
of its material obligations under this Agreement, there
35
shall be no liability or obligation on the part of Northeast, the Stockholders
or the Purchaser or their respective officers or directors (except as set forth
in Sections 10.3, 10.14, 13.11, 13.12 and 13.13 hereof, which shall survive the
termination). Nothing contained in this Section 11.2 shall relieve any party
from liability for willful breach of this Agreement that results in termination
of this Agreement. Upon request therefor, each party shall redeliver all
documents, work papers and other material of any other party relating to the
transactions contemplated hereby, whether obtained before or after the execution
hereof, to the party furnishing same.
12
DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings:
"Acquisition Proposals" shall have the meaning set forth in Section 10.10
of this Agreement.
"Additional Shares" shall have the meaning set forth in Section 10.15 of
this Agreement.
"Adjusted EBITDA for 1998" shall mean the EBITDA, as determined from the
audited financial statements of Northeast prepared by a national accounting firm
acceptable to the Purchaser, for the 12 month period ending December 31, 1998,
except that the amounts comprising "Owners' Compensation" as reflected on such
audited financial statements shall be added back to the extent deducted from the
EBITDA.
"Amended and Restated Practice Management Agreement" shall have the
meaning set forth in the recitals of this Agreement.
"Average EBITDA" shall mean the quotient of (a) EBITDA for the Earnout
Period, divided by (b) two.
"Balance Sheet Date" shall mean December 31, 1998.
"Balance Sheets" shall have the meaning set forth in Sections 5.10 and
6.10 of this Agreement.
"Cash Purchase Price" shall have the meaning set forth in Section
3.1(b)(i) of this Agreement.
"Closing" shall have the meaning set forth in Section 4.1 of this
Agreement.
"Closing Date" shall have the meaning set forth in Section 4.1 of this
Agreement.
"Closing Price" shall mean the closing price of the Common Stock of Oak
Tree on the applicable trading day or, if the Common Stock is not traded on such
day, the closing price on the last preceding day that the Common Stock was
traded.
"Code" shall have the meaning set forth in Section 5.18(b) of this
Agreement.
36
"Disposal Period One" shall have the meaning set forth in Section
3.3(b)(i) of this Agreement.
"Disposal Period Two" shall have the meaning set forth in Section
3.3(b)(ii) of this Agreement.
"Disposed Shares One" shall have the meaning set forth in Section
3.3(b)(i) of this Agreement.
"Disposed Shares Two" shall have the meaning set forth in Section
3.3(b)(iii) of this Agreement.
"Dispute Report" shall have the meaning set forth in Section 3.1(b)(iii)
of this Agreement.
"EBITDA" shall mean earnings before interest, taxes, depreciation and
amortization for the operations of Northeast.
"Earnout Period" shall mean the first full 24 months after the Closing
Date.
"Employment/Independent Contractor Agreements" shall have the meaning set
forth in Section 7.10 of this Agreement.
"Environment" shall mean soil, surface waters, groundwater, land, steam
sediments, surface or subsurface strata and ambient air.
"ERISA" shall have the meaning set forth in Section 5.18(a) of this
Agreement.
"Excess Shares" shall have the meaning set forth in Section 3.3(b)(iii)
hereof.
"Excluded Liabilities" shall have the meaning set forth in Article 2
hereof.
"GAAP" shall mean generally accepted accounting principles in effect in
the United States of America from time to time.
"Instruments of Conveyance" shall have the meaning set forth in Section
1.3 of this Agreement.
"Investor Questionnaire" and "Investor Questionnaires" shall have the
meaning set forth in Section 7.8 of this Agreement.
"Legal Requirements" means, when described as being applicable to any
Person, any and all laws (statutory, judicial or otherwise) ordinances,
regulations, judgments, orders, directives, injunctions, writs, decrees or
awards of, and any contracts, agreements or undertakings with, any Governmental
Authority, in each case as and to the extent applicable to such Person or such
Person's business, operations or properties.
"Material Adverse Change" or "Material Adverse Effect" means a material
adverse change in, or the occurrence of any event which could have a material
adverse change in the assets, properties, liabilities, business, affairs,
results of operations, condition (financial or
37
otherwise) or prospects of (i) Northeast, if such representation or statement is
made with respect to Northeast, or (ii) Oak Tree taken as a whole, if such
representation or statement is made with respect to Purchaser or Oak Tree.
"Negative Result" shall have the meaning set forth in Section 3.1(b)(ii)
of this Agreement.
"Net Undisclosed Liabilities" shall mean Undisclosed Liabilities net of
the tax benefit realized by Oak Tree prior to the expiration of the thirty-month
period after the Closing Date as a result of its net operating loss attributable
to periods prior to the Closing Date.
"Northeast" shall have the meaning set forth in the recitals of this
Agreement.
"Northeast Balance Sheet Date" shall mean June 30, 1999.
"Northeast Plans" shall have the meaning set forth in Section 5.18 of this
Agreement.
"Northeast Representative" shall mean Xxxxxx Xxxxxx, M.D.
"Northeast Welfare Plan" shall have the meaning set forth in Section 5.18
of this Agreement.
"Northeast's Knowledge" means the actual knowledge of Northeast or the
Stockholders engaged in active management of the Business.
"Note Offering" shall mean the 144A underwritten note offering or similar
financing (whether in the form of equity or debt) of approximately $100 million
to be consummated simultaneous with the closing of this Agreement and the Other
Agreements.
"Oak Tree" means Oak Tree Medical Systems, Inc., a Delaware corporation
and the parent of the Purchaser.
"Oak Tree Balance Sheet Date" shall mean February 28, 1999.
"Oak Tree Common Stock" shall mean the common stock, $.01 par value, of
Oak Tree.
"Oak Tree Pension Plan" shall have the meaning set forth in Section
6.18(a) of this Agreement.
"Oak Tree Plans" shall have the meaning set forth in Section 6.18(a) of
this Agreement.
"Oak Tree Welfare Plan" shall have the meaning set forth in Section
6.18(a) of this Agreement.
"Offering Memorandum" shall have the meaning set forth in Section 10.8 of
this Agreement.
"Other Agreements" shall have the meaning set forth in the recitals of
this Agreement.
38
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"Permitted Exceptions" shall mean the Stockholders shall be permitted to
transfer the shares of capital stock of Oak Tree Common Stock to be issued to
the Stockholder (or its designees) under this Agreement to family members or to
a partnership, corporation or limited liability company of which such
Stockholder controls the equity interests have voting or management power in
such entity or to a trust in which such Stockholder has sole or shared voting
power over such shares so held; provided, that, such transferee executes a
written agreement to be bound by the terms of this Agreement.
"Person" means an individual, association, business, entity, corporation,
partnership, joint venture, limited liability company, trust or unincorporated
organization or a government or agency or political subdivision thereof, or
other entity of whatever nature.
"Physicians" shall have the meaning set forth in the recitals of this
Agreement.
"Practices" shall have the meaning set forth in the recitals of this
Agreement.
"Price Protection Shares One" shall have the meaning set forth in Section
3.3(b)(i) of this Agreement.
"Price Protection Shares Two" shall have the meaning set forth in Section
3.3(b)(iii) of this Agreement.
"Proportionate Share" shall mean the percentage set forth opposite each
Stockholder's name on Schedule I.
"Purchase Price" shall have the meaning set forth in Section 3.1(a) of
this Agreement.
"Purchaser" shall have the meaning set forth in the recitals of this
Agreement.
"Purchaser's Knowledge" means the actual knowledge of Purchaser or Oak
Tree or the officers or directors of Oak Tree or Purchaser engaged in the active
management of the business of Oak Tree or Purchaser.
"Receivables" shall have the meaning set forth in Section 1.1(d) of this
Agreement.
"Related Agreements" means the exhibits attached hereto to which such
Person is a party.
"Report" shall have the meaning set forth in Section 3.1(b)(iii) of this
Agreement.
"Sales Price One" shall have the meaning set forth in Section 3.3(b)(i) of
this Agreement.
"SEC" shall mean the United States Securities and Exchange Commission.
"Settlement Accountants" shall have the meaning set forth in Section
3.1(b)(iii) of this Agreement.
39
"Shares of Oak Tree" shall mean the shares of Oak Tree Common Stock
required to be issued to Northeast or its designee pursuant to this Agreement.
"Shortfall Amount One" shall have the meaning set forth in Section
3.3(b)(i) hereof.
"Shortfall Amount Two" shall have the meaning set forth in Section
3.3(b)(iii) hereof.
"Specified Adjusted Price" means $3; provided that, in the event Oak Tree
issues shares of Oak Tree Common Stock after the date hereof and prior to
Closing Date that are not accretive to Oak Tree, the Specified Adjusted Price
shall be reduced, for each such issuance, by an amount equal to the product of
(A) a fraction, the numerator of which is the number of such shares issued by
Oak Tree and the denominator of which is the number of shares of Oak Tree Common
Stock outstanding on the date hereof, calculated on a fully diluted basis, times
(B) $3.
"Stock" shall have the meaning set forth in the Recitals to this
Agreement.
"Stock Purchase Price" shall have the meaning set forth in Section
3.1(b)(ii) of this Agreement.
"Stock Purchase Price Shares" shall have the meaning set forth in Section
3.1(b)(ii) of this Agreement.
"Stockholder Representative" shall mean ____________________________.
"Stockholders" shall have the meaning set forth in the recitals of this
Agreement.
"Target Companies" shall have the meaning set forth in the recitals of
this Agreement.
"Territory" means within a five mile radius of any Practice set forth on
Schedule A or required to be set forth on Schedule A and any state in which any
such Practice is located.
"Termination Date" means March 1, 2000, provided that (i) in the event
that Northeast shall fail to cooperate with the accounting firm retained by Oak
Tree to prepare audited financial statements of Northeast for such periods as
Northeast Representative and Oak Tree agree shall be required and shall not cure
such failure to cooperate within thirty days of receipt by Northeast of written
notice of such failure, the Termination Date shall be extended by the number of
days after the receipt of such notice during which Northeast may continue to
fail to cooperate as specified in such notice, and, (ii) in the event the
financing source for the Note Offering advises the Purchaser that such date
needs to be extended due to market conditions, Northeast and Stockholders agree
to work in good faith with the Purchaser to extend the Termination Date until
market conditions become more favorable to consummate the transactions
contemplated hereby, but in no event by more than four months.
"Third Party Claim" shall have the meaning set forth in Section 9.2(b) of
this Agreement.
"Undisclosed Liabilities" shall mean any liability or obligation of Oak
Tree or Purchaser existing on the Closing Date and not incurred in the ordinary
course of business prior to the Closing Date. For purposes of this definition,
all costs, expenses and fees relating to the
40
transactions contemplated by this Agreement and the Other Agreements, including
but not limited to professional and printing fees and expenses, shall not be
deemed to be ordinary course of business liabilities or obligations.
13
MISCELLANEOUS PROVISIONS
13.1 Right of Offset. Subject to the limitations with respect to each
Stockholder's Proportionate Share, Purchaser is entitled to offset from any
payments (including without limitation the Stock Purchase Price, the Stock
Purchase Price Shares, the Net Realizable Amount, and the Price Protection
Shares One and Two), or reduce the amount of compensation, due from Purchaser to
Northeast or any Stockholder the amount of any damages, claims or costs
(including the loss of revenues) incurred by Purchaser or its affiliates
resulting from Northeast's or any Stockholder's misrepresentations or breach of
warranties under this Agreement or Northeast's or any Stockholder's breach of
another agreement executed in connection herewith (including, but not limited
to, the Other Agreements to which Northeast or any Stockholder is a party),
which damages, claims or costs remain uncured for a period of thirty (30) days
following Purchaser's written notice to Northeast setting forth in reasonable
detail the nature of the breach or misrepresentation.
13.2 Prorations. Personal property ad valorem taxes, assessments, property
insurance, utility charges, maintenance contract fees for those maintenance
contracts approved and assumed by the Purchaser, and other ordinary and
customary operating expenses incurred in the usual course of business, based
upon the actual days involved, shall be prorated as of the Closing Date.
Northeast shall be responsible for all taxes and assessments, including but not
limited to, ad valorem taxes for any period prior to the Closing. All charges or
amounts payable pursuant to any contract of Northeast assumed by Purchaser and
utility charges shall be determined and paid through the Closing Date by
Northeast. To the extent that the actual amounts of such charges, expense and
income referred to in this Section are unavailable at the Closing Date, the
closing statement shall be based upon estimated amounts, and a readjustment
shall be made within twenty (20) days from the Closing Date. The proration of
both real and personal property ad valorem taxes and any assessments shall be
based upon such amounts assessed for the preceding year with allowance made for
the maximum allowable discount for early payment. If such taxes and/or
assessments for the year of Closing increase over those of the preceding year,
Northeast shall pay to Purchaser a pro rata portion of such increase, computed
to the Closing Date and, conversely, if such taxes and/or assessments for the
year of Closing decrease from those of the preceding year, Purchaser shall pay
to Northeast a pro rata portion of such decrease, computed to the Closing Date.
Any such payment shall be made within twenty (20) days after notification by
either party that such adjustment is necessary.
13.3 Amendment and Modification. Subject to applicable law, this Agreement
may be amended, modified or supplemented only by written agreement of the
Purchaser, Northeast and Stockholders with respect to any of the terms contained
herein.
13.4 Counterparts. This Agreement may be executed in one or more
counterparts, each of which is deemed an original and all of which shall be
considered one and the same agreement,
41
and shall become effective when one or more counterparts have been signed by
each of the parties and delivered to the other party.
13.5 Governing Law; Jurisdiction; Venue. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York, without
reference to the choice or conflict of law principles thereof, as to all
matters, including but not limited to matters of validity, construction, effect,
performance and remedies. Except as otherwise expressly provided in this
Agreement, the parties to this Agreement agree that any legal action or
proceeding arising out of or in connection with this Agreement or the
transactions contemplated hereby shall be brought in any court of the State of
New York located in New York County or the United States District Court for the
Southern District of New York, and, by execution and delivery of this Agreement,
the parties hereby submit to and accept with regard to any such action or
proceeding, each for itself and in respect of its property, generally and
unconditionally, the jurisdiction of the aforesaid courts and waive any
objection which such party now or hereafter have to any such court as the venue
for any such proceeding on the ground that it may constitute any forum non
conveniens.
13.6 Specific Performance. Each of the parties hereto acknowledges and
agrees that the other would be irreparably harmed and damaged in the event any
of the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. Accordingly, each of the parties
hereto agrees that the other shall be entitled to an injunction or injunctions
to prevent breaches of the provisions of this Agreement and to enforce
specifically this Agreement and the terms and provisions hereof in any action
instituted in any court specified in Section 13.5 hereof (except as otherwise
expressly provided for in this Agreement), in addition to any other remedy to
which such party may be entitled, at law or in equity.
13.7 Severability. The invalidity or unenforceability of any provision
hereof shall not affect the validity or enforceability of any other provision
hereof.
13.8 Notices. All notices and other communications hereunder shall be
given by personal delivery, by telecopy or by registered or certified mail
(return receipt requested), postage prepaid, to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice, provided that notices of a change of address shall be effective only
upon receipt thereof):
(a) If to Purchaser, to:
c/o Oak Tree Medical Systems, Inc.
0000 Xxxxx Xxxxxxx
Xxxxxxxx, Xxx Xxxx 00000
Attn: President
(b) If to the Stockholders, the address set forth below the
Stockholder Representative's name on the signature page attached hereto.
All such notices and other communications shall be deemed given or
delivered when received or when delivery thereof is refused.
42
13.9 Successors and Assigns. Neither party may assign this Agreement
without the prior written consent of the other party hereto; provided, however,
Purchaser may assign this Agreement without the consent of the Stockholders or
Northeast: (i) to a parent, subsidiary or affiliate of the Purchaser, (ii) to
any entity that the Purchaser merges with or consolidates into; or (iii) to any
entity to which the Purchaser sells all or substantially all of its assets. This
Agreement shall be binding on and shall inure to the benefit of the parties to
this Agreement, and their successors and permitted assigns. Subject to the
foregoing sentence, no person or entity not a party to this Agreement shall have
any right under or by virtue of this Agreement.
13.10 Entire Agreement. This Agreement, including without limitation the
Schedules and Exhibits hereto, contains the entire agreement among the parties
with respect to the subject matter hereof and there are no agreements,
covenants, understandings, representations or warranties among the parties with
respect to the subject matter hereof other than those set forth or referred to
in these agreements.
13.11 Confidentiality. Northeast and the Stockholders recognize and
acknowledge that they had in the past, currently have and in the future may
possibly have access to certain confidential information of the Purchaser that
is valuable, special and a unique asset of the Purchaser's businesses. Northeast
and the Stockholders agree that they will not disclose such confidential
information to any person, firm, corporation, association or other entity for
any purpose or reason whatsoever, unless (i) such information becomes available
to or known by the public generally through no fault of Northeast and the
Stockholders, (ii) disclosure is required by law or the order of any
governmental authority under color of law, provided that prior to disclosing any
information pursuant to this clause (ii) Northeast and the Stockholders shall,
if possible, give prior written notice thereof to the other parties hereto and
provide such other parties hereto with the opportunity to contest such
disclosure, (iii) Northeast and the Stockholders reasonably believe that such
disclosure is required in connection with the defense of a lawsuit against the
disclosing party, or (iv) Northeast and the Stockholders are the sole and
exclusive owners of such confidential information as a result of the
transactions contemplated hereunder or otherwise. In the event of a breach or
threatened breach by Northeast and the Stockholders of the provisions of this
Section 13.11, the Purchaser shall be entitled to an injunction restraining
Northeast and the Stockholders from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting the
Purchaser from pursuing any other available remedy for such breach or threatened
breach, including the recovery of damages. The obligations of the parties under
this Section 13.11 shall survive the termination of this Agreement. The
Purchaser agrees to be subject to the same covenants and restrictions with
respect to the confidential information of Northeast through the Closing Date.
13.12 Expenses. Each of the parties to this Agreement shall bear its own
expenses incurred in connection with the negotiation, preparation, execution and
closing of this Agreement and the transactions contemplated hereby, unless
otherwise agreed to in writing by the parties; provided, that, the expenses of
Northeast shall be borne by the Stockholders and not Northeast. This Section
13.12 shall survive the termination of this Agreement.
13.13 Attorneys' Fees. In the event that a suit for the collection of any
damages resulting from, or for the injunction of any action constituting, a
breach of any of the terms or provisions of this Agreement, then the
non-prevailing party shall pay all reasonable costs, fees
43
(including reasonable attorneys' fees) and expenses of the prevailing party.
This Section 13.13 shall survive the termination of this Agreement.
13.14 Interpretation. When a reference is made in this Agreement to an
article, section, paragraph, clause, schedule or exhibit, such reference shall
be deemed to be to this Agreement unless otherwise indicated. The headings
contained herein and on the schedules are for reference and convenience purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement or the schedules. Whenever the words "include," "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation." Time shall be of the essence in this Agreement.
13.15 Arm's Length Negotiations. Each party herein expressly represents
and warrants to all other parties hereto that: (a) before executing this
Agreement, said party has fully informed itself of the terms, contents,
conditions and effects of this Agreement; (b) said party has relied solely and
completely upon its own judgment in executing this Agreement; (c) said party has
had the opportunity to seek and has obtained the advice of counsel before
executing this Agreement; (d) said party has acted voluntarily and of its own
free will in executing this Agreement; (e) said party is not acting under
duress, whether economic or physical, in executing this Agreement; and (f) this
Agreement is the result of arm's length negotiations conducted by and among the
parties and their respective counsel.
13.16 Appointment of Stockholder Representative. The Stockholders hereby
designate _______________ to be the "Stockholder Representative." The
Stockholder Representative shall act as the representative and agent of the
Stockholders with respect to certain matters arising under and in connection
with this Agreement, including, without limitation, payment of the Purchase
Price to the Stockholder Representative on behalf of the Stockholders and with
respect to indemnification claims made by the Purchaser against the Stockholders
under this Agreement.
44
IN WITNESS WHEREOF, this Agreement has been signed by or on behalf of each
of the parties hereto as of the day first above written.
"PURCHASER":
OAK TREE MEDICAL SYSTEMS PRACTICE
MANAGEMENT, INC.
By:________________________________________
"NORTHEAST":
NORTH EAST MEDICAL MANAGEMENT, INC.
By:________________________________________
"STOCKHOLDERS":
____________________________________________
Xxxxx Xxxxxxx
Address for notices: _________________
_________________
____________________________________________
Xxxxx Xxxxxx
Address for notices: _________________
_________________
____________________________________________
Xxxxxxx Xxxxxx
Address for notices: _________________
_________________
____________________________________________
Xxxx Xxxxxxx
Address for notices: _________________
_________________
45
SCHEDULE I
Number of Shares of Stock % of Total Stock
Name of Stockholder Held by Stockholder Held by Stockholder
------------------- ------------------------- -------------------
Xxxx Xxxxxxx 25%
Xxxxx Xxxxxx 25%
Xxxxxxx Xxxxxx 25%
Xxxx Xxxxxxx 25%
