EXHIBIT 2.1
MEMBERSHIP INTEREST PURCHASE AGREEMENT
BETWEEN
FORTUNE ENTERTAINMENT CORPORATION
(to be known as MEDICAL SOLUTIONS CORPORATION)
AND
DIABETES EDUCATION SOURCES, LLC
AND
FREEDOM MEDICAL SOURCES, LLC
Dated as of August 13, 2004
MEMBERSHIP INTEREST PURCHASE AGREEMENT
MEMBERSHIP INTEREST PURCHASE AGREEMENT (the "Agreement"), dated as of
August 13, 2004 (the "Effective Date"), is entered into by and among the
following parties (collectively the "Parties"):
A. FORTUNE ENTERTAINMENT CORPORATION, a Delaware Corporation (to be
known as Medical Solutions Corporation, a Delaware corporation) (hereinafter
referred to as the "Purchaser");
B. DIABETES EDUCATION SOURCES, LLC, a Florida limited liability company
(hereinafter referred to as "DES");
C. XXXXX X. XXXXXX, an individual, and XXXXX XXXXX, LLC, a Florida
limited liability company, as members of DES (hereinafter collectively
referred to as the "DES Sellers");
D. FREEDOM MEDICAL SOURCES, LLC, a Florida limited liability company
(hereinafter referred to as "FMS"); and
E. XXXXXX X. XXXXXX, an individual, XXXXX X. XXXXXX, an individual,
XXXX X. XXXXXX, an individual, XXXXX X. XXXXXX, an individual, and DES, as
members of FMS (hereinafter collectively referred to as the "FMS Sellers").
F. DES Sellers and FMS Sellers shall be collectively referred to as the
"Sellers".
W I T N E S S E T H:
WHEREAS, the Purchaser is a publicly traded corporation on the Bulletin
Board under the symbol FEMT, was formed in 1996 to capitalize on a patented
technology utilized in video poker machines;
WHEREAS, DES is a Florida limited liability company engaged in the
business of creating ADA recognized diabetes educational programs and products
for doctors, hospitals, durable medical suppliers, and other entities and
individuals capable of billing Medicare and private insurance Sellers, with a
second line of business in consumer / patient education and manufacturer
support;
WHEREAS, FMS is a Florida limited liability company engaged in the
business of selling and distributing medically related products and
maintaining contract customer service departments, with an ancillary ADA
recognized diabetes education program;
WHEREAS, the board of directors of Fortune Entertainment Corporation is
in the process of receiving shareholder approval to change the name of Fortune
Entertainment Corporation to "Medical Solutions Corporations" as the Purchaser
in order to facilitate the acquisition of all membership interest in DES and
FMS, as owned by the DES Sellers and FMS Sellers, respectively, for the
purpose of changing the primary focus of the Purchaser's business from gaming
related technology to diabetes education and medical product distribution;
WHEREAS, the Sellers desire to sell to the Purchaser, and the Purchaser
desires to purchase from the Sellers, their respective Membership Interests
for the purchase price and upon the terms and conditions hereinafter set
forth; and
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WHEREAS, certain terms used in this Agreement are defined in Section
10.1;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements hereinafter contained, the parties hereby agree as follows:
ARTICLE I
SALE AND PURCHASE OF MEMBERSHIP INTERESTS
1.1 Sale and Purchase of Membership Interests. Upon the terms and
subject to the conditions contained herein, on the Closing Date the Sellers
shall sell, assign, transfer, convey and deliver to the Purchaser, and the
Purchaser shall purchase from the Sellers, the Membership Interests free and
clear of any mortgage, imperfection of title, lien, pledge, option, security
interest, claim, deed of trust, hypothecation, charge or other encumbrance of
any kind whatsoever.
1.2 Structure of Transaction. It is the intent of the parties that the
transactions contemplated by this Agreement will constitute a tax-free
reorganization within the meaning of ss368(a) of the Internal Revenue Code of
1986, as amended. However, there are no assurances that the transaction will
qualify as a tax-free reorganization, and therefore each party shall be
responsible for and shall pay any and all taxes, charges or fees attributable
to such party, including individual state and federal income taxes, arising
out of, or by reason of, the exchange of Membership Interests for shares of
common stock of the Purchaser (defined as the "Purchase Price" in Section 2.1,
below), or otherwise in connection with the transactions contemplated hereby.
Each party hereto represents and warrants that it has relied solely on the
opinions or advice of its own professional advisors with respect to the tax
consequences of this transaction, if any, and has not relied on the opinions
or advice of the other parties or its professional advisors in any way with
respect to the tax consequences of this transaction.
ARTICLE II
PURCHASE PRICE AND PAYMENT
2.1 Amount of Purchase Price. The purchase price for the Membership
Interests of both DES Sellers and FMS Sellers shall be Ten Million
(10,000,000) shares of common stock of Purchaser (the "Purchase Price") to be
allocated prorata on accordance with each Seller's respective membership
interest as follows:
(a) DES Sellers. Two Million Two Hundred and Fifty Thousand
(2,250,000) Shares to Xxxxx X. Xxxxxx who holds a forty-five percent (45%)
DES membership interest; Two Million Seven Hundred and Fifty Thousand
(2,750,000) Shares to Xxxxx Xxxxx, LLC who holds a fifty-five percent (55%)
membership interest in DES (which shares shall be allocated among the members
of Xxxxx Xxxxx in accordance with each members' respective membership interest
therein);
(b) FMS Sellers. One Million (1,000,000) Shares to Xxxxxx X.
Xxxxxx; One Million (1,000,000) Shares to Xxxxx X. Xxxxxx; Six Hundred and
Fifty Thousand (650,000) Shares to Xxxx X. Xxxxxx; Six Hundred Thousand
(600,000) shares to Xxxxx X. Xxxxxx; and One Million Seven Hundred Fifty
Thousand (1,750,000) to DES (which shall be allocated between the members of
DES in accordance with each member's respective membership interest therein).
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ARTICLE III
CLOSING AND TERMINATION
3.1 Closing Date. Subject to the satisfaction of the conditions set
forth in Sections 7.1 and 7.2 hereof (or the waiver thereof by the party
entitled to waive that condition), the closing of the sale and purchase of the
Membership Interests provided for in Section 1.1 hereof (the "Closing") shall
take place at 9:00 a.m. at the offices of Fortune Entertainment Corporation
located at 0000 Xxxx Xxxxxx Xxx., Xxxxx 000, Xxx Xxxxx, XX 00000 (or at such
other place as the parties may designate in writing) within seventy-two (72)
hours of the receipt by DES, FMS and the respective Sellers of the Required
Approvals, or on such other date as the Parties may designate in writing. The
date on which the Closing shall be held is referred to in this Agreement as
the "Closing Date."
3.2 Appointment of Board Members. At Closing, Xxxxxx Xxxxxx and Xxxxxx
Xxxxxx shall be nominated to serve as directors of Purchaser, to serve until
their successors may be duly elected by the shareholders of Purchaser.
3.3 Termination of Agreement. This Agreement may be terminated prior
to the Closing as follows:
(a) At the election of either of DES or FMS on or after the twelve
(12) month anniversary of the Effective Date, if the Closing shall not have
occurred by the close of business on such date, provided that none of the
Parties is in default of any of its obligations hereunder;
(b) by mutual written consent of either of DES or FMS, and the
Purchaser;
(c) by either DES or FMS or the Purchaser if there shall be in
effect a final nonappealable Order of a Governmental Body of competent
jurisdiction (other than an order by a Governmental Body specifically
mentioned in subsection (e) or (h) hereof) restraining, enjoining or otherwise
prohibiting the consummation of the transactions contemplated hereby; it being
agreed that the parties hereto shall promptly appeal any adverse determination
which is not nonappealable (and pursue such appeal with reasonable diligence);
(d) by either DES or FMS, in the event of termination and
abandonment by the Purchaser for any reason directly attributable to an act or
omission to act of the Purchaser or any affiliates in material breach of this
Agreement including without limitation, the Purchaser's inability to deliver
the Purchase Price;
(e) by either DES or FMS anytime after any Required Approval is
denied or otherwise refused to be granted by any Governmental Body to
Purchaser, or after an application filed by the Purchaser with any
Governmental Body for approval to purchase the Membership Interests of Sellers
or any other material Required Approval is withdrawn by the Purchaser;
(f) by the Purchaser, in the event of termination and abandonment
by the Sellers for any reason directly attributable to an act or omission to
act of DES, FMS or the Sellers or any of their respective affiliates in breach
of this Agreement;
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(g) by DES or FMS, or the Purchaser if the Federal Trade
Commission, the Department of Justice or any state agency does not approve of
the transaction under the HSR Act or any similar state anti-trust statute.
3.4 Procedure Upon Termination.
(a) In the event of termination and abandonment by the Purchaser,
DES or FMS or any of the Sellers, pursuant to Section 3.2 hereof, written
notice thereof shall forthwith be given to the other party or parties, and
this Agreement shall terminate, and the purchase of the Membership Interests
hereunder shall be abandoned, without further action by the Purchaser, DES,
FMS or the Sellers.
(b) In the event of termination and abandonment for any reason,
each party shall redeliver all documents, work papers and other material of
any other party relating to the transactions contemplated hereby, including
all copies thereof, whether so obtained before or after the execution hereof,
to the party furnishing the same, including, but not limited to, information
furnished to the Purchaser relating to the business of the Sellers, licenses,
operating agreements, financial information and financial projections.
3.5 Effect of Termination. In the event that this Agreement is validly
terminated as provided herein, then each of the parties shall be relieved of
their duties and obligations arising under this Agreement after the date of
such termination and such termination shall be without liability to the
Purchaser, DES, FMS or the Sellers; provided, however, that the obligations of
the parties set forth in Section 10.4 hereof shall survive any such
termination and shall be enforceable hereunder; provided, further, however,
that nothing in this Section 3.4 shall relieve the Purchaser, DES, FMS or the
Sellers of any liability for a breach of this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
DES, FMS and each of the Sellers hereby represent and warrant to the
Purchaser, as applicable, that:
4.1 Organization and Good Standing.
DES and FMS, each, is a limited liability company duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation as set forth above and has all requisite limited liability
company power and authority, including all necessary licenses and permits, to
own, lease and operate its properties and assets and to carry on its business
as now conducted. DES and FMS' respective assets are sufficient in all
material respects to carry out their respective businesses as presently
conducted. There are no assets material to the operation of their respective
businesses that are not owned or leased by the DES or FMS.
4.2 Authorization of Agreement. Subject to the receipt of all Required
Approvals, the DES and FMS and the Sellers have all requisite power, authority
and legal capacity to execute and deliver this Agreement and each other
agreement, document, or instrument or certificate contemplated by this
Agreement or to be executed by the Sellers in connection with the consummation
of the transactions contemplated by this Agreement (together with this
Agreement, the "Sellers' Documents"), and to consummate the transactions
contemplated hereby and thereby. This Agreement has been, and each of the
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Sellers' Documents will be at or prior to the Closing, duly and validly
authorized by all required corporate action on the part of DES and FMS and
duly and validly executed and delivered by DES, FMS or the Sellers and
(assuming the due authorization, execution and delivery by the other parties
hereto and thereto) this Agreement constitutes, and each of the Sellers'
Documents when so executed and delivered will constitute, legal, valid and
binding obligations of the Sellers, enforceable against the Sellers in
accordance with their respective terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting creditors'
rights and remedies generally, and subject, as to enforceability, to general
principles of equity, including principles of commercial reasonableness, good
faith and fair dealing (regardless of whether enforcement is sought in a
proceeding at law or in equity).
4.3 Ownership.
(a) As of the date hereof, the Membership Interests sold by each of
the Sellers is as set forth opposite the name of such Seller on Exhibit A.
All of such Membership Interests have been sold in transactions exempt from
registration under the Securities Act of 1933, as amended (the "Securities
Act") and the Sellers have not violated the Securities Act or any state
securities or Blue Sky laws in connection with the sale of any such Membership
Interests.
(b) There is no existing option, warrant, call, right, commitment
or other agreement of any character to which either DES, FMS or the Sellers
are a party requiring, and there are no securities of either of DES, FMS or
the Sellers outstanding which upon conversion or exchange would require, the
sale or transfer of any additional Membership or other equity securities of
DES, FMS or the Sellers, or other securities convertible into, exchangeable
for or evidencing the right to subscribe for or purchase Membership Interests
or other equity securities of either DES or FMS. Neither DES, FMS or any of
the Sellers is a party to any voting trust or other voting agreement with
respect to any of the Membership Interests.
4.4 Subsidiaries. Neither DES or FMS directly or indirectly, owns or
controls any investment (whether equity or debt) in any corporation,
partnership, joint venture, business organization, trust or other entity.
4.5 Company Records.
(a) DES, FMS and the Sellers have delivered to the Purchaser true,
correct and complete copies of the certificate of organization (each certified
by the Secretary of State or other appropriate official of the applicable
jurisdiction of organization) and operating agreements (executed by all
Sellers) or comparable organizational documents of DES and FMS.
(b) The company books of DES and FMS made available to the
Purchaser contain complete and accurate records of all meetings and accurately
reflect all other company action of the members (including committees thereof)
of DES and FMS. The membership interest transfer ledgers of DES and FMS made
available to the Purchaser are true, correct and complete. Since the date DES
and FMS made the company books and membership interest transfer ledgers
available to the Purchaser, there have been no modifications, amendments,
corrections or other changes made to, approved or authorized with respect to
the foregoing documents. All membership interest transfer taxes levied or
payable with respect to all transfers of Membership Interests of the Sellers
prior to the date hereof have been paid and appropriate transfer tax stamps
affixed.
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4.6 Conflicts; Consents of Third Parties.
(a) Subject to compliance with the applicable requirements of the
Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976 and the rules and
regulations promulgated thereunder (the "HSR Act"), and subject to the receipt
of all Required Approvals, neither the execution and delivery by DES, FMS or
the Sellers of this Agreement and the Sellers' Documents, the consummation of
the transactions contemplated hereby or thereby, or compliance by Parties with
any of the provisions hereof or thereof will (i) conflict with, or result in
the breach of, any provision of the articles of organization or operating
agreements or comparable organizational documents of any of the Sellers; (ii)
conflict with, violate, result in the breach or termination of, or constitute
a default under any note, bond, mortgage, indenture, license, agreement or
other instrument or obligation to which either DES, FMS or the Sellers is a
party or by which either of them or any of their respective properties or
assets is bound; (iii) violate any statute, rule, regulation, writ,
injunction, judgment, ruling, law, order or decree of any governmental body or
authority by which either DES, FMS or the Sellers is bound; or (iv) result in
the creation of any Lien upon the properties or assets of either of the
Sellers except, in the case of clauses (ii), (iii) and (iv), for such
violations, breaches or defaults as would not, individually or in the
aggregate, have a Material Adverse Effect.
(b) Except for compliance with the applicable requirements of the
HSR Act, receipt of all Required Approvals and as set forth in Schedule 4.6(b)
hereto, no consent, waiver, approval, Order, Permit or authorization of, or
declaration or filing with, or notification to, any Person or Governmental
Body is required on the part of DES, FMS or the Sellers in connection with the
execution and delivery of this Agreement or the Sellers Documents', or the
compliance by DES, FMS or the Sellers with any of the provisions hereof or
thereof.
4.7 Transfer of Membership Interests. Except for compliance with the
applicable requirements of the HSR Act and subject to the receipt of all
Required Approvals, DES, FMS and the Sellers have the limited liability
company power and authority to sell, transfer, assign and deliver such
Membership Interests as provided in this Agreement, and such delivery will
convey to the Purchaser good and marketable title to such Membership
Interests, free and clear of any and all Liens.
4.8 Financial Statements. DES, FMS and the Sellers have delivered to
the Purchaser true and complete copies of (i) the audited consolidated balance
sheets of the Sellers as at December 31, 2002 and 2003 and the related audited
consolidated statements of income and of cash flows of the Sellers for the
years then ended and (ii) the unaudited consolidated balance sheet of the
Sellers as at March 31, 2004 (such audited and unaudited statements, including
the related notes and schedules thereto, are referred to herein as the
"Financial Statements"). Each of the Financial Statements is complete and
correct in all material respects, has been (or will be) prepared in accordance
with GAAP (subject to normal year-end adjustments in the case of the unaudited
statements) and in conformity with the practices consistently applied by DES
and FMS without modification of the accounting principles used in the
preparation thereof and presents fairly the financial position, results of
operations and cash flows of DES and FMS as at the dates and for the periods
indicated.
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For the purposes hereof, the unaudited consolidated balance sheet of the
Sellers as at March 31, 2004 is referred to as the "Balance Sheet" and March
31, 2004 is referred to as the "Balance Sheet Date."
4.9 No Undisclosed Liabilities. Neither DES or FMS has any
indebtedness, obligations or liabilities of any kind (whether accrued,
absolute, contingent or otherwise, and whether due or to become due) that
would have been required to be reflected in, reserved against or otherwise
described on the Balance Sheet or in the notes thereto in accordance with GAAP
which was not fully reflected in, reserved against or otherwise described in
the Balance Sheet or the notes thereto or was not incurred in the ordinary
course of business consistent with past practice since the Balance Sheet Date.
The Sellers have no knowledge to the contrary.
4.10 Absence of Certain Developments. Except as expressly contemplated
by this Agreement or as set forth on Schedule 4.10, since the Balance Sheet
Date:
(i) there has not been any Material Adverse Change nor has
there occurred any event which is reasonably likely to result in a Material
Adverse Change;
(ii) there has not been any damage, destruction or loss, not
covered by insurance, with respect to the property and assets of either DES or
FMS having a replacement cost of more than $50,000 for any single loss or
$150,000 for all such losses;
(iii) there has not been any declaration, setting aside or
payment of any dividend or other distribution in respect of any Membership
Interests of either DES or FMS or any repurchase, redemption or other
acquisition by DES or FMS of any outstanding Membership Interests or other
securities of, or other ownership interest in DES or FMS;
(iv) neither DES nor FMS increased rates of compensation
(including bonuses) payable or to become payable to their employees, members,
agents or consultants with respect to their respective businesses, except to
the extent accrued on the Balance Sheet or entered into any employment,
deferred compensation, severance or similar agreement (nor amended any such
agreement) or agreed to increase the compensation payable or to become payable
by it to either DES or FMS' members, employees, agents or representatives or
agreed to increase the coverage or benefits available under any severance pay,
termination pay, vacation pay, awards, salary continuation for disability,
sick leave, deferred compensation, bonus or other incentive compensation,
insurance, pension or other employee benefit plan, payment or arrangement made
to, for or with such members, employees, agents or representatives, except as
to all of the above, other than normal increases in the ordinary course of
business consistent with past practice;
(v) there has not been any change by either DES or FMS in
accounting or Tax reporting principles, methods or policies;
(vi) neither DES nor FMS has entered into any transaction or
Contract or conducted its business other than in the ordinary course
consistent with past practice;
(vii) neither DES nor FMS have failed to promptly pay and
discharge current liabilities except where disputed in good faith by
appropriate proceedings;
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(viii) neither DES nor FMS has made any loans, advances or
capital contributions to, or investments in, any Person or paid any fees or
expenses to the DES or FMS or any respective Affiliate of DES or FMS;
(ix) neither DES nor FMS has mortgaged, pledged or subjected
to any Lien any of its assets, or acquired any assets or sold, assigned,
transferred, conveyed, leased or otherwise disposed of any of their respective
assets, except for assets acquired or sold, assigned, transferred, conveyed,
leased or otherwise disposed of in the ordinary course of business consistent
with past practice;
(x) neither DES nor FMS has discharged or satisfied any Lien,
or paid any obligation or liability (fixed or contingent), except in the
ordinary course of business consistent with past practice and which, in the
aggregate, would not be material to either DES or FMS;
(xi) neither DES nor FMS has canceled or compromised any debt
or claim or amended, canceled, terminated, relinquished, waived or released
any Contract or right except in the ordinary course of business consistent
with past practice and which, in the aggregate, would not be material to
either DES or FMS;
(xii) neither DES nor FMS has made or committed to make any
capital expenditures or capital additions or betterments in excess of $50,000
individually or $150,000 in the aggregate except in the ordinary course of
business, and consistent with past practices;
(xiii) neither DES nor FMS has instituted or settled any
material Legal Proceeding;
(xiv) neither DES or FMS has agreed to take any actions set
forth in this Section 4.10;
(xv) there has not been any loan or advance by either DES or
FMS to any person, except a normal travel advance or other reasonable expense
advance to a member or employee of DES or FMS on normal trade terms extended
to customers;
(xvi) there has not been any sale or transfer of any
properties or assets, other than in the ordinary course of business and
consistent with past practice or any cancellation of any debts or claims of
either DES or FMS;
(xvii) there has not been any amendment, modification or
termination of any material contract or agreement to which either DES or FMS
is a party or pursuant to which their properties or assets may be bound; and
(xviii) there has not been any sale or granting to any party
or parties of any license, franchise, option or other right of any nature
whatsoever with respect to DES or FMS' respective businesses or termination of
any such rights.
4.11 Taxes. (a) Except as set forth in Schedule 4.11:
(i) Each of DES or FMS, and any combined, consolidated,
unitary or affiliated group of which DES or FMS has been a member prior to the
Closing Date: (x) have paid all Taxes required to be paid on or prior to the
Closing Date (including, without limitation, payments of estimated Taxes) for
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which DES or FMS could be held liable; and (y) have accurately and timely
filed (or timely filed an extension for) all federal, state, local, and
foreign tax returns, reports and forms with respect to such Taxes required to
be filed by them on or before the Closing Date.
(ii) All Taxes attributable to all taxable periods ending on
or before the Closing Date, to the extent not required to be previously paid
have been fully and adequately reserved for (as taxes payable or accrued
taxes) on the Financial Statements and DES and FMS will not accrue a Tax
liability from the date of the Financial Statements up to and including the
Closing Date other than a Tax Liability accrued in the ordinary course of
business.
(iii) There is no material dispute or claim, or any action,
suit, proceeding, audit or investigation concerning any liability for Taxes of
DES or FMS either (x) claimed or raised by any authority in writing or (y) as
to which either DES or FMS has any knowledge based upon contact with any agent
of such authority. Except as set forth in Schedule 4.11, there are no
deficiencies for any Taxes and none has been asserted or assessed in writing
for which the DES or FMS could be liable, which remain unpaid or unsettled.
(iv) Neither DES nor FMS has waived or extended any statute
of limitations in respect of Income Taxes or agreed to any extension of time
with respect to an Income Tax assessment or deficiency.
(v) Neither DES nor FMS has made any material payments, is
obligated to make any material payments, or is a party to any agreement that
under certain circumstances could obligate it to make any material payments
that will not be deductible under Code ss 280G and (z) neither DES nor FMS
will have any liability on or after the Closing Date pursuant to any tax
allocation or sharing agreement.
(vi) Neither DES nor FMS has taken any action that would
require an adjustment pursuant to Section 481 of the Code, by reason of a
change in accounting method or otherwise. DES and DMS have not filed a
Consent under Section 341(f)(1) of the Code or agreed to have the provisions
of Section 341(f)(2) of the Code apply to any disposition of "subsection (1)
assets" as such term is defined in Section 341(f)(4) of the Code.
(vii) No Tax assessment or deficiency which has not been paid
or for which an adequate reserve has not been set aside, has been made or
proposed against DES or FMS, nor are any of the Tax Returns not being or, to
the best knowledge of DES, FMS or any of the Sellers, threatened to be
examined or audited, and no consents waiving or extending any applicable
statutes of limitations for the Tax Returns, or any Taxes required to be paid
thereunder, been filed. DES, FMS and each of the Sellers shall promptly
notify the Purchaser of any notice of pending action or proceeding involving
Taxes relating to DES and FMS between the date of this Agreement and the
Effective Date. All Tax deficiencies determined as a result of any past
completed audit have been satisfied. DES and FMS have delivered to the
Purchaser complete and correct copies of all audit reports and statements of
deficiencies with respect to any Tax assessed against or agreed to by DES and
FMS for the three most recent taxable periods for which such audit reports and
statements of deficiencies have been received by DES and FMS.
(viii) Without limiting the foregoing representations in any
way, DES and FMS have collected all sales, use, transaction privilege and
value added Taxes required to be collected, and has remitted, or will remit in
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a timely basis, such amounts to the appropriate governmental authorities and
has furnished properly completed exemption certificates for all exempt
transactions.
(ix) Without limiting the foregoing representations in any
way, DES and FMS have properly withheld income and social security or other
similar Taxes and paid payroll Taxes with respect to all persons properly
characterized as employees for federal, state or local Tax purposes. None of
the assets of DES or FMS are subject to any liens in respect of Taxes (other
than for current Taxes not yet due and payable).
(b) Schedule 4.11 sets forth all federal, state, local and foreign
Income Tax Returns filed with respect to DES and FMS for taxable periods ended
on or after December 31, 2003, indicates those Income Tax Returns that have
been audited, and indicates those Income Tax Returns that currently are the
subject of audit. DES and FMS have delivered or made available to the
Purchaser correct and complete copies of all federal Income Tax Returns,
examination reports, and statements of deficiencies assessed against, or
agreed to by DES and FMS, respectively, since January 1, 2004.
4.12 Real Property.
(a) Neither DES nor FMS owns any real property. Schedule 4.12 sets
forth a complete list of all real property and interests in real property
leased by the Sellers (individually, a "Real Property Lease" and the real
properties specified in such leases being referred to herein individually as a
"Seller Property" and collectively as the "Sellers Properties") as lessee or
lessor. In addition DES and FMS utilize the properties described in Schedule
7.2(i) leased by DES and FMS, which lease shall be assumed by the Purchaser
(or an Affiliate) prior to the Closing Date. Except as set forth in Schedule
4.12 hereto, the Sellers Properties constitute all interests in real property
currently used or currently held for use in connection with the respective
businesses of the Sellers and which are necessary for the continued operation
of such businesses of the Sellers as those businesses are currently conducted.
Both DES and FMS have a valid and enforceable leasehold interest under each of
the Real Property Leases, subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally and subject, as to enforceability, to general principles of
equity (regardless of whether enforcement is sought in a proceeding at law or
in equity), and the Sellers have not received any notice of any default or
event that with notice or lapse of time, or both, would constitute a default
by DES or FMS under any of the Real Property Leases. All of the Sellers
Properties, buildings, fixtures and improvements thereon owned or leased by
DES and FMS are in good operating condition and repair (subject to normal wear
and tear). DES and FMS have delivered to the Purchaser true, correct and
complete copies of the Real Property Leases, together with all amendments,
modifications or supplements, if any, thereto.
(b) DES and FMS have all material certificates of occupancy and
Permits of any Governmental Body necessary or useful for the current use and
operation of each Seller Property, and DES and FMS have fully complied with
all material conditions of the Permits applicable to them. No default or
violation, or event that with the lapse of time or giving of notice or both
would become a default or violation, has occurred in the due observance of any
Permit.
(c) There does not exist any actual or, to the best knowledge of
DES, FMS or any of the Sellers, threatened or contemplated condemnation or
eminent domain proceedings that affect any Seller Property or any part
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thereof, and DES, FMS and the Sellers have not received any notice, oral or
written, of the intention of any Governmental Body or other Person to take or
use all or any part thereof.
(d) Neither DES, FMS nor any of the Sellers has received any
written notice from any insurance company that has issued a policy with
respect to any Seller Property requiring performance of any structural or
other repairs or alterations to such Seller Property.
(e) Neither DES nor FMS owns or holds, and is not obligated under
or a party to, any option, right of first refusal or other Contractual right
to purchase, acquire, sell, assign or dispose of any real estate or any
portion thereof or interest therein.
4.13 Tangible Personal Property.
(a) Schedule 4.13 sets forth all leases of personal property
("Personal Property Leases") involving annual payments in excess of [$10,000]
relating to personal property used in the respective businesses of either DES
or FMS to which DES or FMS is a party or by which the respective properties or
assets of DES or FMS are bound. DES and FMS have delivered or otherwise made
available to the Purchaser true, correct and complete copies of the Personal
Property Leases, together with all amendments, modifications or supplements
thereto.
(b) DES and FMS have a valid leasehold interest under each of the
Personal Property Leases under which it is a lessee, subject to applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally and subject, as to enforceability, to
general principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity), and there is no default under any Personal
Property Lease by either DES or FMS or by any other party thereto, and no
event has occurred that with the lapse of time or the giving of notice or both
would constitute a default thereunder.
(c) DES and FMS have good, valid and marketable title to all of the
items of tangible personal property reflected in the Balance Sheet (except as
sold or disposed of subsequent to the date thereof in the ordinary course of
business consistent with past practice) free and clear of any and all Liens
other than the Permitted Exceptions. All such items of tangible personal
property which, individually or in the aggregate, are material to the
operation of the business of DES and FMS are in good condition and in a state
of good maintenance and repair (ordinary wear and tear excepted) and are
suitable for the purposes used.
(d) All of the items of tangible personal property used by DES and
FMS under the Personal Property Leases are in good condition and repair
(ordinary wear and tear excepted) and are suitable for the purposes used, and
there are no material defects in the physical condition or operability of such
tangible personal property that would impair the use of such tangible personal
property as it is currently used.
4.14 Intangible Property. Schedule 4.14 contains a complete and correct
list of each patent, trademark, trade name, service xxxx, trade secret and
copyright owned, licensed or used by DES and FMS as well as all registrations
thereof and pending applications therefore, and each license or other
agreement relating thereto. Except as set forth on Schedule 4.14, each of the
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foregoing is owned by the party shown on such Schedule as owning the same,
free and clear of all mortgages, claims, liens, security interests, charges
and encumbrances and is in good standing and not the subject of any challenge.
There have been no claims made and neither DES nor FMS nor any of the Sellers
has received any notice or otherwise knows or has reason to believe that any
of the foregoing is invalid or conflicts with the asserted rights of others,
and DES and FMS are not infringing upon or otherwise acting adversely to the
right or claimed right of any person or entity with respect to the intangible
property. DES and FMS possess all patents, patent licenses, trade names,
trademarks, service marks, brand marks, brand names, copyrights, know-how,
formulae and other proprietary and trade rights necessary for the conduct of
its business as now conducted, not subject to any restrictions and without any
known conflict with the rights of others, and DES and FMS have not forfeited
or otherwise relinquished any such patent, patent license, trade name,
trademark, service xxxx, brand xxxx, brand name, copyright, know-how, formulae
or other proprietary right necessary for the conduct of its business as
conducted on the date hereof. Neither of the Sellers is under any obligation
to pay any royalties or similar payments in connection with any license to
DES, FMS or any affiliate thereof. Except as set forth on Schedule 4.14, to
DES, FMS or any of the Sellers' knowledge, none of the patents, trademarks,
trade names, service marks and copyrights are being infringed upon or
appropriated by others, and none is subject to any outstanding litigation or
judgment affecting the scope of free and unrestricted use by DES and FMS or is
used contrary to the provisions of any licensing or other contract. Except as
set forth on Schedule 4.14, there exist no material geographic restrictions on
the use by DES or FMS of such marks.
4.15 Material Contracts. Schedule 4.15 sets forth all of the following
Contracts to which DES and FMS are a party or by which they are bound
(collectively, the "Material Contracts"): (i) Contracts with DES or FMS or
any current member or agent of either DES or FMS; (ii) Contracts with any
labor union or association representing any employee of DES or FMS; (iii)
Contracts pursuant to which any party is required to purchase or sell a stated
portion of its requirements or output from or to another party; (iv) Contracts
for the sale of any of the assets of DES or FMS other than in the ordinary
course of business or for the grant to any person of any preferential rights
to purchase any of its assets; (v) joint venture agreements; (vi) material
Contracts containing covenants of DES and FMS not to compete in any line of
business or with any person in any geographical area or covenants of any other
person not to compete with DES and FMS in any line of business or in any
geographical area; (vii) Contracts relating to the acquisition by DES and FMS
of any operating business or the membership interest of any other person;
(viii) Contracts relating to the borrowing of money; or (ix) any other
Contracts, other than Real Property Leases, which involve the expenditure of
more than [$50,000] in the aggregate or [$10,000] annually or require
performance by any party more than one year from the date hereof. There have
been made available to the Purchaser, its affiliates and their
representative's true and complete copies of all of the Material Contracts.
Except as set forth on Schedule 4.15, all of the Material Contracts and other
agreements are in full force and effect and are the legal, valid and binding
obligation of DES and FMS, enforceable against them in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting creditors' rights and remedies generally
and subject, as to enforceability, to general principles of equity (regardless
of whether enforcement is sought in a proceeding at law or in equity). Except
as set forth on Schedule 4.15, neither DES nor FMS are in default in any
material respect under any Material Contracts, nor, to the knowledge of DES,
FMS or any of the Sellers, is any other party to any Material Contract in
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default thereunder in any material respect, and there are no facts or
circumstances known to DES, FMS or any of the Sellers that would reasonably
indicate that DES, FMS, the Sellers or any other party to any Material
Contract will or may be in breach thereof.
4.16 Employee Benefits.
(a) Schedule 4.16(a) sets forth a complete and correct list of (i)
all "employee benefit plans," as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and all other
pension plans or employee benefit arrangements, programs or payroll practices
(including, without limitation, severance pay, vacation pay, company awards,
salary continuation for disability, sick leave, retirement, deferred
compensation, bonus or other incentive compensation, membership interest
purchase arrangements or policies, hospitalization, medical insurance, life
insurance and scholarship programs) maintained by DES and FMS or to which DES
and FMS contribute or are obligated to contribute thereunder with respect to
employees of DES and FMS ("Employee Benefit Plans") and (ii) all "employee
pension plans", as defined in Section 3(2) of ERISA, maintained by DES or FMS
or any trade or business (whether or not incorporated) which are under
control, or which are treated as a single employer, with DES and FMS under
Section 414(b), (c), (m) or (o) of the ("ERISA Affiliate") or to which DES and
FMS, or any ERISA Affiliate contributed or is obligated to contribute
thereunder ("Pension Plans"). Schedule 4.16(a) clearly identifies, in
separate categories, Employee Benefit Plans or Pension Plans that are (i)
subject to Section 4063 and 4064 of ERISA ("Multiple Employer Plans"), (ii)
multiemployer plans (as defined in Section 4001(a)(3) of ERISA)
("Multiemployer Plans") or (iii) "benefit plans", within the meaning of
Section 5000(b)(1) of the Code providing continuing benefits after the
termination of employment (other than as required by Section 4980B of the Code
or Part 6 of Title I of ERISA and at the former employee's or his
beneficiary's sole expense).
(b) Neither DES nor FMS has any withdrawal or other liability
(contingent or otherwise) under Title IV of ERISA with respect to any Multiple
Employer Plan or Multiemployer Plan.
(c) Each of the Employee Benefit Plans and Pension Plans intended
to qualify under Section 401 of the Code ("Qualified Plans") so qualify and
the trusts maintained thereto are exempt from federal income taxation under
Section 501 of the Code, and, except as disclosed on Schedule 4.16(c), nothing
has occurred with respect to the operation of any such plan which could cause
the loss of such qualification or exemption or the imposition of any
liability, penalty or tax under ERISA or the Code.
(d) All contributions and premiums required by law or by the terms
of any Employee Benefit Plan or Pension Plan which are defined benefit plans
or money purchase plans or any agreement relating thereto have been timely
made (without regard to any waivers granted with respect thereto) to any funds
or trusts established thereunder or in connection therewith, and no
accumulated funding deficiencies exist in any of such plans subject to Section
412 of the Code. All contributions that have not been paid have been properly
recorded on the books of DES and FMS.
(e) The benefit liabilities, as defined in Section 4001(a) (16) of
ERISA, of each of the Employee Benefit Plans and Pension Plans subject to
Title IV of ERISA using the actuarial assumptions that would be used by the
Pension Benefit Guaranty Corporation (the "PBGC") in the event it terminated
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each such plan do not exceed the fair market value of the assets of each such
plan. The liabilities of each Employee Benefit Plan that has been terminated
or otherwise wound up have been fully discharged in full compliance with
applicable Law.
(f) There has been no "reportable event" as that term is defined in
Section 4043 of ERISA and the regulations thereunder with respect to any of
the Employee Benefit Plans or Pension Plans subject to Title IV of ERISA which
would require the giving of notice, or any event requiring notice to be
provided under Section 4041(c) (3) (C) or 4063(a) of ERISA.
(g) There has been no violation of ERISA with respect to the filing
of applicable returns, reports, documents and notices regarding any of the
Employee Benefit Plans or Pension Plans with the Secretary of Labor or the
Secretary of the Treasury or the furnishing of such notices or documents to
the participants or beneficiaries of the Employee Benefit Plans or Pension
Plans.
(h) True, correct and complete copies of the following documents,
with respect to each of the Employee Benefit Plans and Pension Plans (as
applicable), have been delivered to the Purchaser (A) any plans and related
trust documents, and all amendments thereto, (B) the most recent Forms 5500
for the past three years and schedules thereto, (C) the most recent financial
statements and actuarial valuations for the past three years, (D) the most
recent Internal Revenue Service determination letter, (E) the most recent
summary plan descriptions (including letters or other documents updating such
descriptions) and (F) written descriptions of all non-written agreements
relating to the Employee Benefit Plans and Pension Plans.
(i) There are no pending Legal Proceedings which have been asserted
or instituted against any of the Employee Benefit Plans or Pension Plans, the
assets of any such plans or DES or FMS, or the plan administrator or any
fiduciary of the Employee Benefit Plans or Pension Plans with respect to the
operation of such plans (other than routine, uncontested benefit claims), and
there are no facts or circumstances which could form the basis for any such
Legal Proceeding.
(j) Each of the Employee Benefit Plans and Pension Plans has been
maintained, in all material respects, in accordance with its terms and all
provisions of applicable Law. All amendments and actions required to bring
each of the Employee Benefit Plans and Pension Plans into conformity in all
material respects with all of the applicable provisions of ERISA and other
applicable Laws have been made or taken except to the extent that such
amendments or actions are not required by law to be made or taken until a date
after the Closing Date and such amendments or actions are disclosed on
Schedule 4.16(j).
(k) DES and FMS and any ERISA Affiliate which maintains a "benefits
plan" within the meaning of Section 5000(b)(1) of ERISA have complied with the
notice and continuation requirements of Section 4980B of the Code or Part 6 of
Title I of ERISA and the applicable regulations thereunder.
(l) Neither DES nor FMS, any ERISA Affiliate or any organization to
which any is a successor or parent corporation, has divested any business or
entity maintaining or sponsoring a defined benefit pension plan having
unfunded benefit liabilities (within the meaning of Section 4001(a) (18) of
ERISA) or transferred any such plan to any person other than DES or FMS or any
ERISA Affiliate during the previous five-year period ending on the Closing
Date.
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(m) Neither DES nor FMS nor "party in interest" nor "disqualified
person" with respect to the Employee Benefit Plans nor Pension Plans has
engaged in a "prohibited transaction" within the meaning of Section 4975 of
the Code or Section 406 of ERISA or which could subject it to a material civil
penalty imposed pursuant to Section 4975 or 4976 or ERISA.
(n) Neither DES nor FMS nor any ERISA Affiliate have terminated any
Employee Benefit Plan or Pension Plan subject to Title IV of ERISA, or
incurred any outstanding liability under Section 4062 of ERISA to the Pension
Benefit Guaranty Corporation or to a trustee appointed under Section 4042 of
ERISA.
(o) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
payment becoming due to any employee of DES or FMS; (ii) increase any benefits
otherwise payable under any Employee Benefit Plan or Pension Plan; or (iii)
result in the acceleration of the time of payment or vesting of any such
benefits.
(p) No membership interest or other security issued by DES or FMS,
or Sellers, form or has formed a material part of the assets of any Employee
Benefit Plan or Pension Plan.
(q) Except as set forth on Schedule 4.16(q), there are no
proceedings or lawsuits, and to the knowledge of DES, FMS and the Sellers,
there are no investigations, either currently in progress or expected to be
instituted in the future, relating to any Benefit Plan, by any administrative
agency, whether local, state or federal.
(r) Except as set forth on Schedule 4.16(r), there are no pending
or threatened lawsuits or other claims (other than routine claims for benefits
under the plan) against or involving (i) any Benefit Plan or (ii) any
Fiduciary of such Benefit Plan (within the meaning of Section 3(21) (A) of
ERISA) brought on behalf of any participant, beneficiary or Fiduciary
thereunder, nor to the knowledge of DES, FMS or the the Sellers is there any
reasonable basis for any such claim.
(s) DES and FMS have no intention or commitment, whether legally
binding or not, to create any additional Benefit Plan, or to modify or change
any existing Benefit Plan. The benefits under all Benefit Plans are as
represented, and except in the ordinary course of business and consistent with
past practices or as required by law, have not been, and will not be increased
subsequent to the date documents are provided to Purchaser.
(t) Except as set forth on Schedule 4.16(t), none of the Benefit
Plans or any other employment agreement or arrangement entered into by the
Sellers will entitle any current or former employee to any benefits or other
compensation that become payable solely as a result of the consummation of
this transaction.
(u) Neither of the Benefit Plans is subject to the tax on unrelated
business taxable income or unrelated debt-financed income under Section 511 of
the Code.
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(v) Except as set forth on Schedule 4.1(v), no Benefit Plan has any
interest in any annuity contract or other investment or insurance contract
issued by an insurance company that is the subject of bankruptcy,
conservatorship, rehabilitation or similar proceeding.
4.17 Labor. Schedule 4.17 attached hereto contains a complete, current
and correct list of all DES and FMS employees ("Employees"), which includes
the job, position and compensation payable to each of the Employees.
(a) Neither DES nor FMS is a party to any labor or collective
bargaining agreement and there are no labor or collective bargaining
agreements which pertain to employees of DES or FMS. DES and FMS have
delivered or otherwise made available to the Purchaser true, correct and
complete copies of the labor or collective bargaining agreements listed on
Schedule 4.17(a), together with all amendments, modifications or supplements
thereto.
(b) No employees of DES or FMS are represented with respect to DES
or FMS by any labor organization. No labor organization or group of employees
of DES or FMS have made a pending demand for recognition, and there are no
representation proceedings or petitions seeking a representation proceeding
presently pending or, to the best knowledge of DES, FMS and the Sellers,
threatened to be brought or filed, with the National Labor Relations Board or
other labor relations tribunal. There is no organizing activity involving DES
or FMS pending or, to the best knowledge of DES, FMS and the Sellers,
threatened by any labor organization or group of employees of DES and FMS.
(c) There are no (i) strikes, work stoppages, slowdowns, lockouts
or arbitrations or (ii) material grievances or other labor disputes pending
or, to the best knowledge of DES, FMS and the Sellers, threatened against or
involving the DES or FMS. There are no unfair labor practice charges,
grievances or complaints pending or, to the best knowledge of DES, FMS and the
Sellers, threatened by or on behalf of any employee or group of employees of
DES or FMS.
(d) DES and FMS are in material compliance with all laws, statutes,
ordinances, rules, regulations, orders and other requirements relating to the
employment of labor, including without limitation Title V11 of the federal
Civil Rights Act of 1964, the federal Age Discrimination in Employment Act of
1967, the federal Americans with Disabilities Act, and any and all provisions
thereof relating to wages, hours, collective bargaining and the payment of
social security and similar Taxes;
(e) There is no pending or, to the knowledge of DES, FMS and the
Sellers, threatened charge, complaint, allegation, application or other
process or claim against DES or FMS with respect to the statutes referenced in
sub-section (d) above before any federal, territorial, state or local or other
governmental or administrative agency or other entity other than in the
ordinary course of business consistent with past practices;
(f) DES and FMS have paid and performed all obligations when due
with respect to its employees, consultants, agents and members, including
without limitation the payment when due in the ordinary course of business of
any accrued and payable wages, severance pay, vacation pay, benefits and
commissions, except those obligations which are in good faith being challenged
by DES and FMS as not valid obligations of the DES and FMS as more fully
described on Schedule 4.17;
17
(g) To the knowledge of DES, FMS and the Sellers, none of the
persons performing services for DES or FMS have been improperly classified as
independent contractors or as being exempt from the payment of wages for
overtime;
(h) Schedule 4.17(h) lists each individual who is absent from
active employment with DES or FMS by reason of (i) short-term or long-term
disability, (ii) leave of absence under the Family and Medical Leave Act of
1933 (or comparable state statute), (iii) military leave (under conditions
that give the employee re-employment rights) or (iv) other approved leave of
absence; and
(i) Schedule 4.17(i) lists each individual who (i) has elected to
continue participating in a group health plan of DES and FMS pursuant to an
election under COBRA, or (ii) has not made an election under COBRA but who is
still within the period during which the election may be made.
4.18 Litigation. Except as set forth in Schedule 4.18, there is no suit,
action, proceeding, investigation, claim or order pending or, to the knowledge
of DES, FMS and the Sellers, threatened against DES or FMS (or to the
knowledge of DES, FMS and the Sellers, pending or threatened, against any of
the officers, directors or key employees of DES or FMS with respect to their
business activities on behalf of the DES or FMS), or to which DES or FMS is
otherwise a party, which, if adversely determined, would have a Material
Adverse Effect, before any court, or before any governmental department,
commission, board, agency, or instrumentality; nor to the knowledge of DES,
FMS or the Sellers is there any reasonable basis for any such action,
proceeding, or investigation. Neither DES nor FMS is subject to any judgment,
order or decree of any court or governmental agency except to the extent the
same are not reasonably likely to have a Material Adverse Effect and neither
DES nor FMS are engaged in any legal action to recover monies due it or for
damages sustained by it.
4.19 Compliance with Laws; Permits.
DES and FMS is in compliance with all Laws applicable to DES and FMS
or to the conduct of the business or operations of DES and FMS or the use of
their respective properties (including any leased properties) and assets,
except for such non-compliances as would not, individually or in the
aggregate, have a Material Adverse Effect. Neither DES, FMS nor any of the
Sellers has received any written notification of any asserted present or past
failure by DES or FMS to comply with such laws, statutes, ordinances, rules,
regulations, orders or other requirements. DES and FMS have all governmental
permits and approvals from state, federal or local authorities which are
required for DES and FMS to operate its business. Schedule 4.19 attached
hereto contains a complete, current and correct list of all material
governmental licenses, permits, franchises, rights and privileges necessary
for the present conduct of the Business (the "Licenses"). Except as set forth
in Schedule 4.19, DES and FMS possess all such Licenses. Each of the Licenses
is in full force and effect, and there are no pending or, to the knowledge of
DES, FMS and the Sellers, threatened claims or proceedings challenging the
validity of or seeking to revoke or discontinue, any of the Licenses. Prior
to the date hereof, DES and FMS have delivered to the Purchaser a complete,
current and correct copy of each of the Licenses.
18
4.20 Environmental Matters. Except as set forth on Schedule 4.20 hereto:
(a) the respective operations of DES and FMS are in compliance with
all applicable Environmental Laws and all permits issued by other governmental
authorities pursuant to Environmental Laws or otherwise;
(b) DES and FMS have obtained all permits required under all
applicable Environmental Laws necessary to operate its business;
(c) neither DES nor FMS is the subject of any outstanding written
order or Contract with any governmental authority or person respecting (i)
Environmental Laws, (ii) Remedial Action or (iii) any Release or threatened
Release of a Hazardous Material;
(d) neither DES nor FMS has received any written communication
alleging that DES or FMS may be in violation of any Environmental Law, or any
permit issued pursuant to Environmental Law, or may have any liability under
any Environmental Law;
(e) neither DES nor FMS has any current contingent liability in
connection with any Release of any Hazardous Materials into the indoor or
outdoor environment (whether on-site or off-site);
(f) to the knowledge of DES, FMS and the Sellers, there are no
investigations of the business, operations, or currently or previously owned,
operated or leased property of DES or FMS pending or threatened which could
lead to the imposition of any liability pursuant to Environmental Law;
(g) there is not located at any of the properties of DES or FMS any
(i) underground storage tanks, (ii) asbestos-containing material or (iii)
equipment containing polychlorinated biphenyls; and,
(h) DES and FMS have provided to the Purchaser all environmentally
related audits, studies, reports, analyses, and results of investigations that
have been performed with respect to the currently or previously owned, leased
or operated properties of DES and FMS.
(i) Neither DES nor FMS has discovered or, to their knowledge,
caused, and, to the knowledge of DES, FMS or the Sellers, no other person has
discovered or caused, any discharge, emission, disposal or release of
Hazardous Substances on the premises of DES or FMS, or any occurrence or
condition on such premises or in the vicinity of such premises, which could
make such premises subject to restrictions on the ownership, occupancy,
transferability or use under any Hazardous Materials Laws.
4.21 Insurance. Schedule 4.21 sets forth a complete and accurate list of
all policies of insurance of any kind or nature covering DES and FMS or any of
their respective employees, properties or assets, including, without
limitation, policies of life, disability, fire, theft, workers compensation,
employee fidelity and other casualty and liability insurance. Schedule 4.21
details each policy, carrier, the amount of coverage, its expiration date, and
the date through which premiums have been paid. All such policies are in full
force and effect, and, to the knowledge of DES, FMS and the Sellers, neither
DES nor FMS is in default of any provision thereof, except for such defaults
as would not, individually or in the aggregate, have a Material Adverse
Effect.
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To the knowledge of DES, FMS and the Sellers, such policies (i) are
adequate for compliance with all agreements or instruments to which DES and
FMS is a party, or pursuant to which their business, properties or assets may
be subject, (ii) are valid, outstanding and enforceable policies, (iii)
provide insurance coverage in the amounts indicated in such policies for DES
and FMS' respective businesses, properties, assets and operations as presently
conducted and (iv) will remain in full force and effect through the respective
dates set forth on Schedule 4.21, without the payment of additional premiums,
other than additional premiums paid in the ordinary course of business or
additional premiums required as a result of an audit. Schedule 4.21 also
describes all claims of DES and FMS which are pending under such insurance
policies or have been paid to DES and FMS since January 1, 2002. Since January
1, 2002, DES and FMS have not been refused coverage by any insurance carrier
with respect to their respective properties, assets or operations, nor has
their coverage been limited, by any insurance carrier to which either DES or
FMS has applied for any such insurance or with which either DES or FMS has
carried insurance. Prior to the date hereof, DES and FMS shall have delivered
to the Purchaser complete, current and correct copies, in all material
respects, of all of the policies of insurance which are maintained by or for
the benefit of DES and FMS.
4.22 Inventories; Receivables; Payables.
(a) The inventories of DES and FMS are in good and marketable
condition, and are saleable in the ordinary course of business. All
inventories owned by DES and FMS have been purchased in the ordinary course of
business and consistent with anticipated requirements of their respective
businesses. Adequate reserves have been reflected in the Balance Sheet for
obsolete or otherwise unusable inventory, which reserves were calculated in a
manner consistent with past practice and in accordance with GAAP consistently
applied.
(b) All accounts receivable of DES and FMS have arisen from bona
fide transactions in the ordinary course of business consistent with past
practice. All accounts receivable of DES and FMS reflected on the Balance
Sheet are good and collectible at the aggregate recorded amounts thereof, net
of any applicable reserve for returns or doubtful accounts reflected thereon,
(c) which reserves are adequate and were calculated in a manner
consistent with past practice and in accordance with GAAP consistently
applied. All accounts receivable arising after the Balance Sheet Date are
good and collectible at the aggregate recorded amounts thereof, net of any
applicable reserve for returns or doubtful accounts, which reserves are
adequate and were calculated in a manner consistent with past practice and in
accordance with GAAP consistently applied.
(d) All accounts payable of DES and FMS reflected in the Balance
Sheet or arising after the date thereof are the result of bona fide
transactions in the ordinary course of business and have been paid or are not
yet due and payable.
4.23 Customers and Suppliers. Schedule 4.23 sets forth a list of the
largest customers and the largest suppliers of DES and FMS, as measured by the
dollar amount of purchases therefrom or thereby representing at least 5% of
DES and FMS' consolidated revenues, during the fiscal year ended December 31,
2003 and the five month period ended May 31, 2004, showing the approximate
total purchases by DES and FMS from each such supplier and the approximate
total revenues by DES and FMS from each such customer, during such period.
20
Since the Balance Sheet Date, there has not been any material adverse change
in the business relationship of DES and FMS with any customer or supplier
listed on Schedule 4.23.
4.24 Financial Advisors. No Person has acted, directly or indirectly, as
a broker, finder or financial advisor for the DES or FMS in connection with
the transactions contemplated by this Agreement and no Person is entitled to
any fee, commission, compensation or like payment in respect thereof.
4.25 Transactions with Affiliates. Except as set forth on Schedule 4.25,
neither DES or FMS nor any Affiliates (as defined below), has any interest,
directly or indirectly, in any material lease, lien, contract, license,
encumbrance, loan or other agreement to which DES or FMS is a party, any
interest (other than as a shareholder) in any properties or assets of DES or
FMS or any interest in any competitor, supplier or customer of DES or FMS.
"Affiliate" shall mean, with respect to any person, any other person
controlling, controlled by or under common control with the subject person,
with control being evidenced by ownership of more than 50% of the capital
membership interest of a person or the ability to direct the management or
policies of another person through any other means.
4.26 Bank Accounts. Schedule 4.26 sets forth the names and locations of
all banks, trust, savings and loan associations and other financial
institutions at which DES and FMS maintain safe deposit boxes or accounts of
any nature.
4.27 Technology.
(a) The current software applications used by DES and FMS in the
operation of their business are set forth and described on Schedule 4.27
hereto (the "Software").
(b) To the extent that any of the Software has been designed or
developed by DES or FMS' management information or development staff or by
consultants on behalf of DES or FMS, such Software is original and capable of
copyright protection in the United States, and DES and FMS have complete
rights to and ownership of such Software, including possession of, or ready
access to, the source code for such Software in its most recent version. No
part of any such Software is an imitation or copy of, or infringes upon the
software of any other person or entity, or violates or infringes upon any
common law or statutory rights of any other person or entity, including,
without limitation, rights relating to defamation, contractual rights,
copyrights, trade secrets, and rights of privacy or publicity. Neither DES
nor FMS has sold, assigned, licensed, distributed or in any other way disposed
of or encumbered any of the Software.
(c) Except as set forth on Schedule 4.28, the Software, to the
extent it is licensed from any third party licensor or constitutes
"off-the-shelf" software, is held by the DES or FMS legitimately and is fully
transferable hereunder without any third party consent. All of the computer
hardware of DES and FMS have legitimately licensed software installed therein.
(d) DES and FMS have not knowingly altered its data, or any
Software or supporting software which may, in turn, damage the integrity of
the data, stored in electronic optical, or magnetic or other form. Except as
set forth on Schedule 4.27 hereto, neither DES, FMS nor any of the Sellers
have any knowledge of the existence of any bugs or viruses with respect to the
Software.
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(e) DES and FMS shall, to the maximum possible extent, pass through
to the Purchaser all manufacturer's and supplier's warranties and support
contracts for the Software that are owned by DES and FMS, and DES and FMS
shall execute each document that is necessary or appropriate to effectuate the
Purchaser's obtaining and enjoying the benefits of any such pass-through
warranty.
(f) DES and FMS have furnished to the Purchaser true and accurate
copies of all documentation (end user or otherwise) relating to the use,
maintenance and operation of the Software.
4.28 Medicare Provider Status. FMS assures FEC that a change in
ownership does not affect the Medicare provider status as registered under
number 4927080001 and the change in ownership will be filed in compliance with
Medicare regulations
4.29 Investment in Purchaser. By accepting the Purchase Price in the
form of shares of common stock of the Purchaser, each Seller is making an
investment in the common stock of the Purchaser, and each Seller individually
makes the following additional representations and warranties:
(a) The Seller is entering into this Agreement for its own account
and the Seller has no present arrangement (whether or not legally binding) at
any time to sell the shares of common stock of the Purchaser except as
permitted by law.
(b) The Seller is a sophisticated investor (as described in Rule
506(b)(2)(ii) of Regulation D of the Securities Act of 1933, as amended)
and/or an accredited investor (as defined in Rule 501 of Regulation D), and
the Seller has such experience in business and financial matters that it is
capable of evaluating the merits and risks of an investment in the common
stock of the Purchaser. The Seller acknowledges that an investment in the
common stock of the Purchaser is speculative and involves a high degree of
risk.
(c) The Seller has received all documents, records, books and other
publicly available information pertaining to Seller's investment in the
Purchaser that have been requested by the Seller. The Purchaser is subject to
the periodic reporting requirements of the Securities Exchange Act of 1934, as
amended, and the Seller has had access to and/or received copies of all of
Purchaser's periodic filings with the Securities and Exchange Commission that
have been requested by Seller.
(d) Transfer Restrictions. The Seller acknowledges that the shares
of common stock of the Purchaser are being offered in reliance on the
exemptions from the registration requirements of the Securities Act and that
the shares may not be resold except pursuant to an effective registration
statement or an exemption from the registration provisions of the Securities
Act. The Seller acknowledges that the certificates representing the shares
shall bear a restrictive legend.
(e) The Seller is responsible for obtaining such legal and tax
advice as the Seller considers appropriate in connection with the execution,
delivery and performance by Seller of this Agreement and the transactions
contemplated hereunder.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to DES, FMS and the Sellers
that:
5.1 Organization and Good Standing. The Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Delaware.
5.2 Authorization of Agreement. The Purchaser has full corporate power
and authority to execute and deliver this Agreement and each other agreement,
document, instrument or certificate contemplated by this Agreement or to be
executed by the Purchaser in connection with the consummation of the
transactions contemplated hereby and thereby (the "Purchaser Documents"), and
to consummate the transactions contemplated hereby and thereby, subject to the
receipt of Required Approvals. The execution, delivery and performance by the
Purchaser of this Agreement and each Purchaser Document have been duly
authorized by all necessary corporate action on behalf of the Purchaser. This
Agreement has been, and each Purchaser Document will be at or prior to the
Closing, duly executed and delivered by the Purchaser and (assuming the due
authorization, execution and delivery by the other parties hereto and thereto)
this Agreement constitutes, and each Purchaser Document when so executed and
delivered will constitute, legal, valid and binding obligations of the
Purchaser, enforceable against the Purchaser in accordance with their
respective terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally, and subject, as to enforceability, to general principles
of equity, including principles of commercial reasonableness, good faith and
fair dealing (regardless of whether enforcement is sought in a proceeding at
law or in equity).
5.3 Conflicts; Consents of Third Parties.
(a) Other than compliance with the applicable requirements of the
HSR Act and the receipt of all Government Approvals, neither the execution and
delivery by the Purchaser of this Agreement and of the Purchaser Documents,
nor the compliance by the Purchaser with any of the provisions hereof or
thereof will (i) conflict with, or result in the breach of, any provision of
the articles of incorporation or by-laws of the Purchaser, (ii) conflict with,
violate, result in the breach of, or constitute a default under any note,
bond, mortgage, indenture, license, agreement or other obligation to which the
Purchaser is a party or by which the Purchaser or its properties or assets are
bound or (iii) violate any statute, rule, regulation, order or decree of any
governmental body or authority by which the Purchaser is bound, except, in the
case of clauses (ii) and (iii), for such violations, breaches or defaults as
would not, individually or in the aggregate, have a material adverse effect on
the business, properties, results of operations, prospects, conditions
(financial or otherwise) of the Purchaser and its subsidiaries, taken as a
whole.
(b) Except for compliance with the applicable requirements of the
HSR Act, the receipt of the Required Approvals and as set forth on Schedule
5.3 hereto, no consent, waiver, approval, Order, Permit or authorization of,
or declaration or filing with, or notification to, any Person or Governmental
Body is required on the part of the Purchaser in connection with the execution
and delivery of this Agreement or the Purchaser Documents or the compliance by
the Purchaser with any of the provisions hereof or thereof.
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5.4 Litigation. There are no Legal Proceedings pending or, to the best
knowledge of the Purchaser, threatened that are reasonably likely to prohibit
or restrain the ability of the Purchaser to enter into this Agreement or
consummate the transactions contemplated hereby.
5.5 Investment Intention. The Purchaser is acquiring the Membership
Interests for its own account, for investment purposes only and not with a
view to the distribution (as such term is used in Section 2(11) of the
Securities Act of 1933, as amended (the "Securities Act") thereof. The
Purchaser understands that the Membership Interests have not been registered
under the Securities Act and cannot be sold unless subsequently registered
under the Securities Act or an exemption from such registration is available.
5.6 Financial Advisors. No Person has acted, directly or indirectly, as
a broker, finder or financial advisor for the Purchaser in connection with the
transactions contemplated by this Agreement and no person is entitled to any
fee or commission or like payment in respect thereof.
ARTICLE VI
COVENANTS
6.1 Access to Information.
(a) DES and FMS agree that, prior to the Closing Date, the
Purchaser shall be entitled, through its officers, employees and
representatives (including, without limitation, its legal advisors and
accountants), to make such investigation of the properties, businesses and
operations of DES and FMS and such examination of the books, records and
financial condition of DES and FMS as it reasonably requests and to make
extracts and copies of such books and records. Any such investigation and
examination shall be conducted during regular business hours and under
reasonable circumstances, and DES and FMS shall cooperate, and shall cause
DES and FMS to cooperate, fully therein. No investigation by the Purchaser
prior to or after the date of this Agreement shall diminish or obviate any of
the representations, warranties, covenants or agreements of DES and FMS
contained in this Agreement or Sellers' Documents. In order that the
Purchaser may have full opportunity to make such physical, business,
accounting and legal review, examination or investigation as it may reasonably
request of the affairs of DES and FMS, DES and FMS shall cause the managers,
members, employees, consultants, agents, accountants, attorneys and other
representatives of DES and FMS to cooperate fully with such representatives in
connection with such review and examination.
(b) From the date hereof to the Closing Date, DES and FMS shall use
their reasonable efforts to keep the Purchaser informed from time to time
concerning any material changes that may occur affecting DES and FMS.
6.2 Conduct of the Business Pending the Closing.
(a) Except as otherwise expressly contemplated by this Agreement or
with the prior written consent of the Purchaser, DES and FMS shall:
(i) conduct the respective businesses of DES and FMS only in
the usual, ordinary course consistent with past practice;
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(ii) use their best efforts to (A) preserve their respective
present business operations, organization (including, without limitation,
management and the sales force) and goodwill of DES and FMS and (B) preserve
their present relationships with Persons, customers, suppliers, distributors
and others having business dealings with DES and FMS;
(iii) maintain (A) all of the respective assets and properties
of DES and FMS in their current condition and in good working order, ordinary
wear and tear excepted and (B) insurance upon all of the respective properties
and assets of DES and FMS in such amounts and of such kinds comparable to that
in effect on the date of this Agreement;
(iv) (A) maintain the books, accounts and records of DES and
FMS in the ordinary course of business consistent with past practices, (B)
continue to collect accounts receivable and pay accounts payable utilizing
normal procedures and without discounting or accelerating payment of such
accounts, and (C) comply with all contractual and other obligations applicable
to the operation of DES and FMS and continue to perform its obligations under
the Material Contracts; and
(v) comply in all material respects with applicable laws,
including, without limitation, Environmental Laws.
(b) Except as otherwise expressly contemplated by this Agreement or
with the prior written consent of the Purchaser, DES and FMS shall not:
(i) declare, set aside, make or pay any dividend or other
distribution in respect of the membership interest of DES or FMS or
repurchase, redeem or otherwise acquire any outstanding Membership Interests
of DES or FMS, or any of the Sellers;
(ii) transfer, issue, pledge, sell or dispose of or authorize
the transfer, issuance, sale, pledge or disposal of any Membership Interests
or other securities of DES or FMS or grant options, warrants, calls or other
rights to purchase or otherwise acquire Membership Interests or other
securities of DES or FMS;
(iii) effect any recapitalization, reclassification,
membership interest split or like change in the capitalization of DES or FMS;
(iv) amend the operating agreements of DES or FMS;
(v) (A) materially increase the annual level of compensation
of any employee of DES or FMS, (B) materially increase the annual level of
compensation payable or to become payable by DES or FMS to any of their
respective executive officers, (C) grant any unusual or extraordinary bonus,
benefit or other direct or indirect compensation to any employee, manager or
consultant, other than in the ordinary course consistent with past practice
and in such amounts as are fully reserved against in the Financial Statements,
(D) materially increase the coverage or benefits available under any (or
create any new) severance pay, termination pay, vacation pay, company awards,
salary continuation for disability, sick leave, deferred compensation, bonus
or other incentive compensation, insurance, pension or other employee benefit
plan or arrangement made to, for, or with any of the managers, employees,
agents or representatives of the Sellers or otherwise modify or amend or
terminate any such plan or arrangement other than in the ordinary course of
business, and consistent with past practice or (E) enter into any employment,
deferred compensation, severance, consulting, non-competition or similar
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agreement (or amend any such agreement) to which DES or FMS is are a party or
involving a manager or employee of DES or FMS in his or her capacity as a
manager or employee of DES or FMS except as to all of the above other than
normal increases in the ordinary course of business consistent with past
practice;
(vi) except for trade payables and for indebtedness for
borrowed money incurred in the ordinary course of business and consistent with
past practice, borrow monies for any reason or draw down on any line of credit
or debt obligation, or become the guarantor, surety, endorser or otherwise
liable for any debt, obligation or liability (contingent or otherwise) of any
other Person;
(vii) sell, grant, dispose of or authorize the sale, grant,
disposal or subject (except for leases that do not materially impair the use
of the property subject thereto in their respective businesses as presently
conducted) any of the properties or assets (whether tangible or intangible) of
DES or FMS to any Lien;
(viii) acquire any material properties or assets or sell,
assign, transfer, convey, lease or otherwise dispose of any of the material
properties or assets (except for fair consideration in the ordinary course of
business consistent with past practice) of DES or FMS;
(ix) cancel or compromise any debt or claim or waive or
release any material right, direct or indirect, of DES or FMS except in the
ordinary course of business consistent with past practice;
(x) enter into any commitment for capital expenditures of DES
or FMS (other than in the ordinary course of business, and consistent with
past practice) in excess of $50,000 for any individual commitment and $150,000
for all commitments in the aggregate, or incur, assume or pre-pay any
long-term debt or assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, contingently or otherwise) for the obligations
of any other Person except in the ordinary course of business, and consistent
with past practices;
(xi) enter into, modify or terminate any labor or collective
bargaining agreement of DES or FMS or, through negotiation or otherwise, make
any commitment or incur any liability to any labor organization with respect
to DES or FMS;
(xii) introduce any material change with respect to the
operation of DES or FMS, including any material change in the types, nature,
composition or quality of its products or services, experience any material
change in any contribution of its product lines to its revenues or net income,
or, other than in the ordinary course of business, make any change in product
specifications or prices or terms of distributions of such products;
(xiii) permit DES or FMS to enter into any transaction or to
make or enter into any Contract which by reason of its size or otherwise is
not in the ordinary course of business consistent with past practice;
(xiv) permit DES or FMS to enter into or agree to enter into
any merger or consolidation with, any corporation or other entity, and not
engage in any new business or invest in, make a loan, advance or capital
contribution to, or otherwise acquire the securities of any other Person;
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(xv) except for transfers of cash pursuant to normal cash
management practices, permit DES or FMS to make any investments in or loans
to, or pay any fees or expenses to, or enter into or modify any Contract with,
DES or FMS or any of their respective Affiliates;
(xvi) agree to do anything prohibited by this Section 6.2 or
anything which would make any of the representations and warranties of the
DES, FMS or the Sellers in this Agreement or the Sellers Documents untrue or
incorrect in any material respect as of any time through and including the
Effective Date;
(xvii) amend any Material Contract in any material respect; or
(xviii) authorize, recommend, propose or announce an intention
to adopt a plan of complete or partial liquidation or dissolution of DES or
FMS.
6.3 Consents. DES and FMS shall use their best efforts, and the
Purchaser shall cooperate with DES and FMS, to obtain at the earliest
practicable date all consents and approvals required to consummate the
transactions contemplated by this Agreement, including, without limitation,
the consents and approvals referred to in Section 4.6(b) hereof; provided,
however, that neither DES, FMS nor the Purchaser shall be obligated to pay any
consideration therefore to any third party from whom consent or approval is
requested.
6.4 Filings with Governmental Bodies.
(a) As promptly as practicable after the execution of this
Agreement, each party shall, in cooperation with the other, file or cause to
be filed any reports, notifications or other information that may be required
to comply with the applicable requirements of the HSR Act, the Required
Approvals and as described in Schedules 4.6 and 5.3 and shall furnish or cause
to be furnished to the other all such information in its possession as may be
reasonably necessary for the completion of the reports, notifications or
submissions to be filed by the other. Each party hereto agrees to use its
best efforts to comply and cause its Affiliates to comply in a full and timely
manner with any request from a Governmental Body for additional information.
6.5 Other Actions. Each of the Parties shall use its best efforts to
(i) take all actions necessary or appropriate to consummate the transactions
contemplated by this Agreement and (ii) cause the fulfillment at the earliest
practicable date of all of the conditions to their respective obligations to
consummate the transactions contemplated by this Agreement.
6.6 No Solicitation.
(a) DES and FMS will not, and will not cause or permit DES, FMS or
any of the members, employees, representatives or agents (collectively, the
"Representatives") to, directly or indirectly, (i) discuss, negotiate,
undertake, authorize, recommend, propose or enter into, either as the proposed
surviving, merged, acquiring or acquired limited liability company, any
transaction involving a merger, consolidation, business combination, purchase
or disposition of any amount of the assets or membership interests or other
equity interest in DES or FMS other than the transactions contemplated by this
Agreement (an "Acquisition Transaction"), (ii) facilitate, encourage, solicit
or initiate discussions, negotiations or submissions of proposals or offers in
respect of an Acquisition Transaction, (iii) furnish or cause to be furnished,
27
to any Person, any information concerning the business, operations, properties
or assets of the Sellers in connection with an Acquisition Transaction, or
(iv) otherwise cooperate in any way with, or assist or participate in,
facilitate or encourage, any effort or attempt by any other Person to do or
seek any of the foregoing. DES and FMS will inform the Purchaser in writing
immediately following the receipt by DES, FMS or any Representative of any
proposal or inquiry in respect of any Acquisition Transaction.
(b) The Purchaser will not, and will not cause or permit any of its
Representatives to, directly or indirectly, (i) discuss, negotiate, undertake,
authorize, recommend, propose or enter into, either as the proposed surviving,
merged, acquiring or acquired corporation, any Acquisition Transaction, (ii)
discuss, negotiate, undertake, authorize, recommend, propose or enter into,
either as the proposed surviving, merged, acquiring or acquired corporation,
any transaction involving a merger, consolidation, business combination,
purchase or disposition of any amount of the assets or capital membership
interest or other equity interest in any entity engaged in the Business (a
"Competing Acquisition Transaction") (iii) facilitate, encourage, solicit or
initiate discussions, negotiations or submissions of proposals or offers in
respect of an Acquisition Transaction or a Competing Acquisition, (iv) furnish
or cause to be furnished, to any Person, any information concerning the
business, operations, properties or assets of DES, FMS or any of its
Subsidiaries in connection with an Acquisition Transaction, or (v) otherwise
cooperate in any way with, or assist or participate in, facilitate or
encourage, any effort or attempt by any other Person to do or seek any of the
foregoing. Notwithstanding the foregoing, the Purchaser may engage in a
Competing Acquisition Transaction with the prior written consent of DES and
FMS, such consent not to be unreasonably withheld. Without limiting the
foregoing, it shall be reasonable to withhold consent if such Competing
Acquisition Transaction could reasonably be expected to adversely affect the
consummation of the transactions contemplated by, or a party's performance
under, this Agreement or any Purchaser Documents or materially adversely
affect DES or FMS. The Purchaser will inform DES and FMS in writing
immediately following the receipt by the Purchaser or any Representative of
any proposal or inquiry in respect of any Acquisition Transaction or Competing
Acquisition Transaction.
6.7 Preservation of Records. Subject to Section 9.8(e) hereof (relating
to the preservation of Tax records), DES, FMS and the Purchaser agree that
each of them shall preserve and keep the records held by it relating to the
respective businesses of the DES and FMS for a period of six years from the
Closing Date and shall make such records and personnel available to the other
as may be reasonably required by such party in connection with, among other
things, any insurance claims by, legal proceedings against or governmental
investigations of DES, FMS or the Purchaser or any of their Affiliates or in
order to enable DES, FMS or the Purchaser to comply with their respective
obligations under this Agreement and each other agreement, document or
instrument contemplated hereby or thereby. In the event DESA, FMS or the
Purchaser wishes to destroy such records after that time, such party shall
first give ninety (90) days prior written notice to the other and such other
party shall have the right at its option and expense, upon prior written
notice given to such party within that ninety (90) day period, to take
possession of the records within one hundred and eighty (180) days after the
date of such notice.
6.8 Publicity. None of the Parties shall issue any press release or
public announcement concerning this Agreement or the transactions contemplated
hereby without obtaining the prior written approval of the other party hereto,
28
which approval will not be unreasonably withheld or delayed, unless, in the
sole judgment of the Purchaser or DES or FMS, disclosure is otherwise required
by applicable Law or by the applicable rules of any membership interest
exchange on which the Purchaser or DES or FMS lists securities, provided that,
to the extent required by applicable law, the party intending to make such
release shall use its best efforts consistent with such applicable law to
consult with the other party with respect to the text thereof.
6.9 Repayment of Loans. On or prior to the Closing Date, all loans or
other advances made by DES, FMS to any of their respective Affiliates listed
on Schedule 6.10 (the "Affiliate Loans"), including any accrued and unpaid
interest thereon, shall be repaid in full to DES and FMS.
6.10 Cash. DES hereby agrees that, on or prior to the Closing Date, it
shall have approximately $15,000 of cash necessary for the immediate continued
operation of its business and FMS hereby agrees that, on or prior to the
Closing Date, it shall have approximately $11,600 of cash necessary for the
immediate continued operation of its business. Each of the Purchaser and DES
and FMS agree to develop a mutually acceptable ownership transition plan prior
to the Closing to address cash transfer procedures to be applied as of the
Closing in order to effectuate a fair and equitable accounting of cash and the
transfer of possession of cash retained for the business of DES and FMS.
6.11 Environmental Matters.
(a) DES and FMS shall permit the Purchaser to conduct such
investigations (including investigations known as "Phase I" and "Phase II"
environmental audits) of the environmental conditions of DES and FMS'
respective properties and facilities as the Purchaser, in its sole discretion,
shall deem necessary. Such investigations shall be conducted in a manner that
minimizes the disruption of the operations of DES and FMS.
(b) DES and FMS shall promptly file all materials required under
Environmental Laws (including, without limitation, foreign or state property
transfer laws) and all requests required for the issuance, transfer or
reissuance to the Purchaser of Permits necessary to conduct DES and FMS'
business prior to the Closing Date.
6.12 Employee Benefit Matters.
(a) During the period commencing on and after the Closing Date,
Purchaser shall maintain or cause to be maintained wages, compensation levels
(including without limitation, end of year discretionary bonuses) and vacation
benefits for the benefit of employees of DES and FMS which are equal or
greater than those wages, compensation levels and vacation benefits that are
in effect on the date hereof. From and after the Closing Date, the Purchaser
shall provide the employees of DES and FMS the same other benefits that it
offers the employees of its other subsidiaries.
(b) The Purchaser will, or will cause DES and FMS to, (i) waive all
limitations as to preexisting conditions, exclusions and waiting periods with
respect to participation and coverage requirements applicable to the employees
of DES and FMS under any welfare plan that such employees may be eligible to
participate in after the Closing Date, (ii) provide each employee of DES or
FMS with credit for any co-payments and deductibles paid prior to the Closing
Date in satisfying any applicable deductible or out-of-pocket requirements
under any welfare plans that such employees are eligible to participate in
after the Closing Date, and (iii) provide each employee of the DES and FMS
29
with credit for all service with DES and FMS and its Affiliates under each
employee benefit plan, program, or arrangement of Purchaser or its Affiliates
in which such employees are eligible to participate; provided, however, that
in no event shall the employees be entitled to any credit to the extent that
it would result in a duplication of benefits with respect to the same period
of service.
(c) DES and FMS shall pay all medical, hospitalization, survivor
benefits, life insurance, disability and other employee welfare benefit plan
claims that were incurred by any employee of DES or FMS (or his or her covered
dependents) in the ordinary course and consistent with prior practice up
through the Closing Date and the Purchaser shall pay any such claim that is
incurred by such an employee (or his or her covered dependents) after the
Closing Date.
(d) The Purchaser may, but shall have no obligation to, continue
plan sponsorship of DES or FMS' Plans as of the Closing Date. If the Purchaser
continues plan sponsorship of DES or FMS' Plans, the Purchaser may, but shall
have no obligation to, continue the Plans after the Closing Date; provided,
however, if Purchaser does not continue any of the Plans, Purchaser shall
offer DES and FMS employees at such time benefits under the Purchaser's Plans
which are similar to the benefits offered under the Plans, including
severance, vacation, disability, and life insurance benefits.
(e) On the Closing Date, the Purchaser shall, or shall cause DES or
FMS to, assume any and all obligations of DES and FMS and its Affiliates
(including, but not limited to, any health or medical plans sponsored by DES,
FMS or their respective Affiliates) to provide continuation coverage to
Transferred Employees pursuant to the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended, consistent with DES and FMS'
respective policies.
ARTICLE VII
CONDITIONS TO CLOSING
7.1 Conditions Precedent to Obligations of the Purchaser. The
obligation of the Purchaser to consummate the transactions contemplated by
this Agreement is subject to the fulfillment, on or prior to the Closing Date,
of each of the following conditions (any or all of which may be waived by the
Purchaser in whole or in part to the extent permitted by applicable law):
(a) all representations and warranties of DES, FMS and the Sellers
contained herein shall be true and correct as of the date hereof;
(b) all representations and warranties of DES, FMS and the Sellers
contained herein qualified as to materiality shall be true and correct, and
the representations and warranties of DES, FMS and the Sellers contained
herein not qualified as to materiality shall be true and correct in all
material respects, at and as of the Closing Date with the same effect as
though those representations and warranties had been made again at and as of
that time;
(c) DES, FMS and the Sellers shall have performed and complied in
all material respects with all obligations and covenants required by this
Agreement to be performed or complied with by it on or prior to the Closing
Date;
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(d) the Purchaser shall have been furnished with certificates
(dated the Closing Date and in form and substance reasonably satisfactory to
the Purchaser) executed by DES and FMS, and the Sellers (as applicable)
certifying as to the fulfillment of the conditions specified in Sections
7.1(a), 7.1(b) and 7.1(c) hereof;
(e) Certificates representing 100% of the Membership Interests
shall have been, or shall at the Closing be, validly delivered and transferred
to the Purchaser, free and clear of any and all Liens;
(f) there shall not have been or occurred any Material Adverse
Change;
(g) DES and FMS shall have obtained all consents and waivers
referred to in Section 4.6 hereof, in a form reasonably satisfactory to the
Purchaser, with respect to the transactions contemplated by this Agreement and
the Sellers Documents;
(h) no proceedings by or on behalf of any Governmental Body shall
have been instituted or threatened or claim or demand made against DES, FMS or
the Sellers, or the Purchaser seeking to restrain or prohibit the consummation
of the transactions contemplated hereby, and there shall not be in effect any
Order by a Governmental Body of competent jurisdiction restraining, enjoining
or otherwise prohibiting the consummation of the transactions contemplated
hereby;
(i) the Purchaser shall have received the written resignations of
each member of DES and FMS, and the Sellers;
(j) the waiting period under the HSR Act shall have expired or
early termination shall have been granted, as applicable;
(k) all Affiliate Loans shall have been repaid to DES and FMS prior
to the Closing Date; and
7.2 Conditions Precedent to Obligations of the Sellers. The obligations
of the Sellers to consummate the transactions contemplated by this Agreement
are subject to the fulfillment, prior to or on the Closing Date, of each of
the following conditions (any or all of which may be waived by the Sellers in
whole or in part to the extent permitted by applicable law):
(a) all representations and warranties of the Purchaser contained
herein shall be true and correct as of the date hereof;
(b) all representations and warranties of the Purchaser contained
herein qualified as to materiality shall be true and correct, and all
representations and warranties of the Purchaser contained herein not qualified
as to materiality shall be true and correct in all material respects, at and
as of the Closing Date with the same effect as though those representations
and warranties had been made again at and as of that date;
(c) the Purchaser shall have performed and complied in all material
respects with all obligations and covenants required by this Agreement to be
performed or complied with by Purchaser on or prior to the Closing Date;
(d) the Sellers shall have been furnished with certificates (dated
the Closing Date and in form and substance reasonably satisfactory to the
Sellers) executed by the Chief Executive Officer and Chief Financial Officer
of the Purchaser certifying as to the fulfillment of the conditions specified
in Sections 7.2(a), 7.2(b) and 7.2(c);
31
(e) there shall not be in effect any Order by a Governmental Body
of competent jurisdiction restraining, enjoining or otherwise prohibiting the
consummation of the transactions contemplated hereby;
(f) the Purchaser shall have obtained all consents including the
Required Approvals and waivers referred to in Section 5.3 hereof with respect
to the transactions contemplated by this Agreement and the Purchaser
Documents;
(g) the waiting period under the HSR Act shall have expired or
early termination shall have been granted, as applicable; and
(h) the Purchaser shall have obtained the Required Approvals.
ARTICLE VIII
DOCUMENTS TO BE DELIVERED
8.1 Documents to be Delivered by the Sellers. At the Closing, DES, FMS
and the Sellers, as applicable, shall deliver, or cause to be delivered, to
the Purchaser the following:
(a) membership interest certificates representing the Membership
Interests of Sellers (in DES and FMS), duly endorsed in blank or accompanied
by membership interest transfer powers and with all requisite membership
interest transfer tax stamps attached;
(b) the certificates referred to in Section 7.1(d) and 7.1(e)
hereof;
(c) copies of all consents and waivers referred to in Section
7.1(g) hereof;
(d) written evidence of the repayment to DES and FMS of all
Affiliate Loans;
(e) written resignations of each of the members of DES and FMS, as
the Sellers;
(f) certificates of good standing with respect to DES and FMS
issued by the Secretary of State of the State of Florida and for each state in
which DES and FMS are each qualified to do business as a foreign corporation;
and
(g) such other documents as the Purchaser shall reasonably request.
8.2 Documents to be Delivered by the Purchaser. At the Closing, the
Purchaser shall deliver to the Sellers the following:
(a) evidence of issuance of the shares of common stock of Purchaser
as the Purchase Price referred to in Section 2.2 hereof;
(b) the certificates referred to in Section 7.2(d) hereof; and
(c) such other documents as the Sellers shall reasonably request.
32
ARTICLE IX
INDEMNIFICATION
9.1 Survival of Representations and Warranties. All representations and
warranties contained in this Agreement shall survive the Closing and shall
continue in effect for a period of nine (9) months after the Closing Date (the
"General Liability Period") for purposes of enforcement and shall be binding
on the parties hereto and their successors, heirs, devisees, legal
representatives and assigns.
9.2 Purchaser's Indemnity. The Purchaser shall indemnify and hold
Sellers harmless from any claim, demand, loss, liability, damage, or expense
(including reasonable attorneys' fees) (collectively, "Sellers' Recoverable
Losses") arising out of or in connection with (i) breach by Purchaser of any
representation or warranty of Purchaser or any covenant or agreement to be
performed after Closing, and (ii) claims of third parties with respect to the
ownership and/or operation of DES and FMS from and after the Closing Date
(collectively, the "Purchaser Purchase Agreement Breach").
9.3 DES, FMS and Sellers' Indemnity. DES, FMS and the Sellers shall
indemnify and hold Purchaser harmless from any claim, demand, loss, liability,
damage, or expense (including reasonable attorneys' fees) (collectively,
"Purchaser's Recoverable Losses") arising out of or in connection with (i) any
breach by DES, FMS or the Sellers of any representation or warranty hereof,
and (ii) claims of third parties with respect to the ownership and/or
operation of DMS and FMS before the Closing Date (collectively, the "Sellers
Purchase Agreement Breach").
9.4 Sellers' Remedies. If the Purchaser defaults under any provision of
this Agreement before the Closing Date, the Purchaser and Sellers agree that
the damages that Sellers will sustain as a result thereof will be substantial,
but will be difficult to ascertain. The Purchaser and the Sellers agree that
it is and will be extremely difficult and impractical to fix the extent of
such damages. To avoid these problem, Purchaser and Sellers agree that as
Sellers' sole and exclusive remedy in the event of Purchaser's breach hereof,
at law or in equity, the Sellers shall be entitled to retain as liquidated
damages $00.00. The Parties agree that this is reasonable considering all of
the circumstances existing on the date of this Agreement, including the
relationship of the sum to the range of harm to DES, FMS and the Sellers that
reasonably could be anticipated and the anticipation that proof of actual
damages would be costly or inconvenient.
The Sellers shall have all remedies available at law or equity for
post-closing breaches of this Agreement by the Purchaser.
9.5 Purchaser's Remedies. If DES, FMS and Sellers, fail to deliver
title and possession of the Membership Interests at (Closing in accordance
with this Agreement even though all conditions to Sellers' obligations have
been timely satisfied, then, Purchaser may either:
(i) obtain as its sole monetary remedy
(1) reimbursement of up to $250,000.00 for reasonable and
documented attorneys' fees, expert fees, consultant fees and expenses incurred
therewith and paid by Purchaser (with no reimbursement of any fees or expenses
incurred by Purchaser by reason of any financing or equity investment sought
by Purchaser in connection with this transaction); and
33
(2) Upon the making of such refund and reimbursement, this
Agreement shall terminate and DESA, FMS, Sellers and Purchaser shall each be
released and discharged from any further obligation to the other hereunder at
law or in equity; or
(ii) bring an action for specific performance of this Agreement.
9.6 Limitations on Indemnification for Breaches of Representations and
Warranties. Sellers shall not have any liability under Section 9.3 hereof
unless the aggregate amount of Purchaser's Recoverable Losses exceeds $25,000
(the "Basket") and, in such event, the indemnifying party shall be required to
pay the entire amount of such Losses and Expenses in excess of $25,000 up to a
maximum of $1,000,000.
9.7 Non-Tax Indemnification Procedures.
(a) In the event that any Legal Proceedings shall be instituted or
that any claim or demand ("Claim") shall be asserted by any Person in respect
of which payment may be sought under Section 9.2 or Section 9.3 hereof
(regardless of the Basket), the indemnified party shall reasonably and
promptly cause written notice of the assertion of any Claim of which it has
knowledge which is covered by this indemnity to be forwarded to the
indemnifying party. The indemnifying party shall have the right, at its sole
option and expense, to be represented by counsel of its choice, which must be
reasonably satisfactory to the indemnified party, and to defend against,
negotiate, settle or otherwise deal with any Claim which relates to any Losses
indemnified against hereunder. If the indemnifying party elects to defend
against, negotiate, settle or otherwise deal with any Claim which relates to
any Losses indemnified against hereunder, it shall within five (5) days (or
sooner, if the nature of the Claim so requires) notify the indemnified party
of its intent to do so. If the indemnifying party elects not to defend
against, negotiate, settle or otherwise deal with any Claim which relates to
any Losses indemnified against hereunder, fails to notify the indemnified
party of its election as herein provided or contests its obligation to
indemnify the indemnified party for such Losses under this Agreement, the
indemnified party may defend against, negotiate, settle or otherwise deal with
such Claim. If the indemnified party defends any Claim, then the indemnifying
party shall reimburse the indemnified party for the Expenses of defending such
Claim upon submission of periodic bills. If the indemnifying party shall
assume the defense of any Claim, the indemnified party may participate, at his
or its own expense, in the defense of such Claim; provided, however, that such
indemnified party shall be entitled to participate in any such defense with
separate counsel at the expense of the indemnifying party if, so requested by
the indemnifying party to participate or (ii) in the reasonable opinion of
counsel to the indemnified party, a conflict or potential conflict exists
between the indemnified party and the indemnifying party that would make such
separate representation advisable; and provided, further, that the
indemnifying party shall not be required to pay for more than one such counsel
for all indemnified parties in connection with any Claim. The parties hereto
agree to cooperate fully with each other in connection with the defense,
negotiation or settlement of any such Claim.
(b) After any final judgment or award shall have been rendered by a
court, arbitration board or administrative agency of competent jurisdiction
and the expiration of the time in which to appeal therefrom, or a settlement
shall have been consummated, or the indemnified party and the indemnifying
party shall have arrived at a mutually binding agreement with respect to a
Claim hereunder, the indemnified party shall forward to the indemnifying party
34
notice of any sums due and owing by the indemnifying party pursuant to this
Agreement with respect to such matter and the indemnifying party shall be
required to pay all of the sums so due and owing to the indemnified party by
wire transfer of immediately available funds within 10 business days after the
date of such notice.
(c) The failure of the indemnified party to give reasonably prompt
notice of any Claim shall not release, waive or otherwise affect the
indemnifying party's obligations with respect thereto except to the extent
that the indemnifying party can demonstrate actual loss and prejudice as a
result of such failure.
9.8 Tax Matters.
(a) Tax Indemnification. (i) DES, FMS and the Sellers agree to be
responsible for and to indemnify and hold the Purchaser Indemnified Parties
harmless from and against any and all Taxes that may be imposed upon or
assessed against DES, FMS or the Sellers or the assets of DES and FMS:
(A) with respect to all taxable periods ending on or
prior to the Closing Date;
(B) with respect to any and all Taxes of the Sellers for
the period allocated to DES or FMS pursuant to Section 9.8(b)(iv);
(C) arising by reason of any breach by DES, FMS or the
Sellers of any of the representations contained in Section 4.11 hereof;
(D) by reason of being a successor-in-interest or
transferee of another entity; and
(E) with respect to any and all Taxes of any member of a
consolidated, combined or unitary group of which DES or FMS (or any
predecessor) is or was a member on or prior to the Closing Date, by reason of
the liability of Sellers pursuant to Treasury Regulation Section 1.1502-6(a)
or any analogous or similar state, local or foreign law or regulation.
(ii) Purchaser agrees to indemnify and hold harmless the DES,
FMS and the Sellers from and against any and all Taxes (A) of DES and FMS with
respect to any taxable period of DES and FMS beginning after the Closing Date
and (B) attributable to the period allocated to Purchaser pursuant to Section
9.4(b)(iv).
(b) Preparation of Tax Returns; Payment of Taxes.
(i) The Sellers shall include the Sellers, or cause the
Sellers to be included in, and shall file or cause to be filed, (A) the United
States consolidated federal income Tax Returns of the Sellers or its
Affiliates for the taxable periods of the Sellers ending on or prior to the
Closing Date and (B) where applicable, all other consolidated, combined or
unitary Tax Returns of DES, FMS or their respective Affiliates for the taxable
periods of DES and FMS ending (or the portion of any taxable period ending) on
or prior to the Closing Date, and shall pay any and all Taxes due with respect
to the returns referred to in clause (A) or (B) of this Section 9.8(b)(i).
DES and FMS also shall file all other Tax Returns of or which include DES or
FMS, required to be filed (taking into account any extensions) on or prior to
the Closing Date and shall pay any and all Taxes due with respect to such Tax
Returns. All Tax Returns described in this Section 9.8(b)(i) shall be
35
prepared in a manner consistent with prior practice unless a past practice has
been finally determined to be incorrect by the applicable taxing authority or
a contrary treatment is required by applicable tax laws (or the judicial or
administrative interpretations thereof).
(ii) Following the Closing, the Purchaser shall be responsible
for preparing or causing to be prepared all federal, foreign, state and local
Tax Returns required to be filed by DES or FMS after the Closing Date. To the
extent any Taxes shown due on any such Tax Return are indemnifiable by DES and
FMS, (A) such Tax Return shall be prepared in a manner consistent with prior
practice unless otherwise required by applicable tax laws; (B) the Purchaser
shall provide DES and FMS with copies of such Tax Return at least 45 days
prior to the due date for filing such return; and (C) DES and FMS shall have
the right to review and approve (which approval shall not be unreasonably
withheld) such Tax Returns for 30 days following receipt thereof. The failure
of DES and FMS to propose any changes to any such Tax Return within such 30
days shall be deemed to be an indication of its approval thereof. DES and FMS
and the Purchaser shall attempt in good faith mutually to resolve any
disagreements regarding such Tax Returns prior to the due date for filing
thereof. Any disagreements regarding such Tax Returns which are not resolved
prior to the filing thereof shall be promptly resolved pursuant to Section
9.8(h) which shall be binding on the parties. The Purchaser shall file or
cause to be filed all such Tax Returns and shall, subject to receiving the
payments from DES and FMS referred to in Section 9.8(b)(iii), pay the Taxes
shown due thereon; provided, however, that nothing contained in the foregoing
shall in any manner terminate, limit or adversely affect any right of the
Purchaser Indemnified Parties, DES, FMS or the Sellers to receive
indemnification pursuant to any provision in this Agreement.
(iii) Not later than 5 days before the due date for payment of
Taxes with respect to any Tax Returns which the Purchaser has the
responsibility to file, DES and FMS, or the Sellers in proportion to their
respective Membership Interest in DES or FMS, shall pay to the Purchaser an
amount equal to that portion of the Taxes shown on such return for which DES,
FMS or the Sellers has an obligation to indemnify the Purchaser and its
Affiliates pursuant to the provisions of Section 9.8(a).
(iv) For federal income tax purposes, the taxable year of DESA
and FMS shall end as of the close of the Closing Date and, with respect to all
other Taxes, DES, FMS and the Purchaser will, unless prohibited by applicable
law, close the taxable period of DES and FMS as of the close of the Closing
Date. Neither DES, FMS nor the Purchaser shall take any position inconsistent
with the preceding sentence on any Tax Return. In any case where applicable
law does not permit DES or FMS to close its respective taxable year on the
Closing Date or in any case in which a Tax is assessed with respect to a
taxable period which includes the Closing Date (but does not begin or end on
that day), then Taxes, if any, attributable to the taxable period of DES and
FMS beginning before and ending after the Closing Date shall be allocated (i)
to DES or FMS for the period up to and including the Closing Date, and (ii) to
the Purchaser for the period subsequent to the Closing Date. Any allocation
of income or deductions required to determine any Taxes attributable to any
period beginning before and ending after the Closing Date shall be prepared by
the Purchaser and shall be made by means of a closing of the books and records
of DES and FMS as of the close of the Closing Date, provided that exemptions,
allowances or deductions that are calculated on an annual basis (including,
but not limited to, depreciation and amortization deductions) and Taxes that
are not based on income or receipts shall be allocated between the period
ending on the Closing Date and the period after the Closing Date in proportion
36
to the number of days in each such period. The Purchaser shall provide DES
and FMS with a schedule showing the computation of the allocation at least 45
days prior to the due date for filing a Tax Return which includes the Closing
Date. DES and FMS shall have the right to review such schedule, and the
Purchaser and DES and FMS shall attempt in good faith mutually to resolve any
disagreements regarding the determination of such allocation. Any
disagreements regarding such determination shall be resolved pursuant to
Section 9.8(h) which shall be binding on the parties. Any amount owing from
the Sellers under this Section 9.8(b)(iv) shall be paid no later than five (5)
days prior to the filing of the underlying Tax Return.
(c) Cooperation with Respect to Tax Returns. The Purchase, DES and
FMS agree to furnish or cause to be furnished to each other, and each at their
own expense, as promptly as practicable, such information (including access to
books and records) and assistance, including making employees available on a
mutually convenient basis to provide additional information and explanations
of any material provided, relating to DES and FMS as is reasonably necessary
for the filing of any Tax Return, for the preparation for any audit, and for
the prosecution or defense of any claim, suit or proceeding relating to any
adjustment or proposed adjustment with respect to Taxes. The Purchaser, DES
or FMS shall retain in its possession, and shall provide DES and FMS
reasonable access to (including the right to make copies of), such supporting
books and records and any other materials that DES and FMS may specify with
respect to Tax matters relating to any taxable period ending on or prior to
the Closing Date until the relevant statute of limitations has expired. After
such time, the Purchaser may dispose of such material, provided that prior to
such disposition the Purchaser shall give DES and FMS a reasonable opportunity
to take possession of such materials.
(d) Tax Audits.
(i) The Purchaser shall have the sole right to represent the
interests of DES and FMSA in any Tax audit or administrative or court
proceeding relating to taxable periods of DES and FMS beginning after the
Closing Date and to employ counsel of its choice at its expense; provided that
if the results of such Tax audit or proceeding could reasonably be expected to
have a material adverse effect on the assets, business, operations, or
financial condition of DES and FMS for taxable periods ending after the
Closing Date, then there shall be no settlement or closing or other agreement
with respect thereto without the written consent of DES and FMS (which consent
shall not be unreasonably withheld). DES and FMS agree that it will cooperate
fully with the Purchaser and its counsel in the defense against or compromise
of any claim in any said proceeding.
(ii) If any taxing authority asserts a claim, makes an
assessment or otherwise disputes or affects any Tax for which DES or FMS is
responsible hereunder the Tax reporting position of DES or FMS for taxable
periods ending on or prior to the Closing Date, the Purchaser shall, promptly
upon receipt by the Purchaser or DES or FMS of notice thereof, inform DES and
FMS thereof.
(iii) DES and FMS, and the Sellers shall represent their
interests in any Tax audit or administrative or court proceeding relating to
any taxable period of DES and FMS which includes (but does not begin or end
on) the Closing Date. All costs, fees and expenses paid to third parties in
the course of such proceeding shall be borne by DES and FMS and the Purchaser
in the same ratio as the ratio in which, pursuant to the terms of this
Agreement, DES and FMS and the Purchaser would share the responsibility for
37
payment of the Taxes asserted by the taxing authority in such claim or
assessment if such claim or assessment were sustained in its entirety.
(e) Refund Claims. Except as otherwise provided in Section 9.8(f),
to the extent any determination of Tax liability of DES or FMS, whether as the
result of an audit or examination, a claim for refund, the filing of an
amended return or otherwise, results in any refund of Taxes paid attributable
to (i) any period which ends on or before the Closing Date or (ii) any period
which includes the Closing Date but does not begin or end on that day, any
such refund shall belong to DES or FMS, provided that in the case of any Tax
refund described in clause (ii) of this Section 9.8(e), the portion of such
Tax refund which shall belong to DES or FMS shall be that portion that is
attributable to the portion of that period which ends on the Closing Date
(determined on the basis of an interim closing of the books as of the Closing
Date), and the Purchaser shall promptly pay any such refund, and the interest
actually received thereon, to DES and FMS upon receipt thereof by the
Purchaser. Any and all other refunds shall belong to the Purchaser. Any
payments made under this Section 9.8(e) shall be net of any Taxes payable with
respect to such refund, credit or interest thereon (taking into account any
actual reduction in Tax liability realized upon the payment pursuant to this
Section 9.8(e)). Any such claim for a refund or amended return shall be filed
by the Purchaser at the written request of DES or FMS, and on behalf of DES or
FMS.
(f) Transfer Taxes. DES and FMS shall be liable for and shall pay
(and shall indemnify and hold harmless the Purchaser against) all sales, use,
stamp, documentary, filing, recording, transfer or similar fees or taxes or
governmental charges (including, without limitation, real property transfer
gains taxes, UCC-2 filing fees, FAA, ICC, DOT, real estate and motor vehicle
registration, title recording or filing fees and other amounts payable in
respect of transfer filings) as levied by any taxing authority or governmental
agency in connection with the transactions contemplated by this Agreement
(other than taxes measured by or with respect to income imposed on DES or FMS
or on the Purchaser or its Affiliates). DES and FMS hereby agree to file all
necessary Documents (including, but not limited to, all Tax Returns) with
respect to all such amounts in a timely manner.
(g) Any dispute as to any matter covered hereby shall be resolved
by an independent accounting firm mutually acceptable to DES, FMS and the
Purchaser. The fees and expenses of such accounting firm shall be borne
equally by DES, FMS (and Sellers), vis-a-vis the Purchaser.
(h) The indemnification provided for in this Section 9.8 shall be
the sole remedy for any claim in respect of Taxes and the provisions of
Sections 9.1 through 9.3 hereof shall not apply to such claims.
(i) Any claim for indemnity under this Section 9.8 may be made at
any time prior to 60 days after the expiration of the applicable Tax statute
of limitations with respect to the relevant taxable period (including all
periods of extension, whether automatic of permissive).
9.9 Employee Benefits and Labor Indemnity. DES, FMS and the Sellers (as
applicable) hereby agrees to indemnify and hold the Purchaser Indemnified
Parties harmless from and against any and all losses, liabilities,
obligations, damages, costs and expenses (including reasonable attorneys' fees
and the cost and expenses of enforcing such right of indemnification) and
penalties, if any, (i) arising out of or based upon or with respect to any
Employee Benefit Plan or Pension Plan or any other "employee benefit plan"
38
within the meaning of Section 3(3) of ERISA maintained by, contributed to or
to which there is or was an obligation to contribute to DES or FMS, DES and
FMS, or any ERISA Affiliate and (ii) as a result of any claim made with
respect to employment prior to or on the Closing Date with DES and FMS
including, without limitation, any claim with respect to, relating to arising
out of or in connection with discrimination by the Sellers or wrongful
discharge (including constructive discharge).
9.10 Tax Treatment of Indemnity Payments. DES, FMS and the respective
Sellers, and the Purchaser agree to treat any indemnity payment made pursuant
to this Article 9 as an adjustment to the Purchase Price for federal, state,
local and foreign income tax purposes.
ARTICLE X
MISCELLANEOUS
10.1 Certain Definitions.
For purposes of this Agreement, the following terms shall have the
meanings specified in this Section 10.1:
"Affiliate" shall have the meaning ascribed to such term in Section
4.25.
"Balance Sheet" shall have the meaning ascribed to such term in
Section 4.8 hereof.
"Balance Sheet Date" shall have the meaning ascribed to such term in
Section 4.8 hereof.
"Business Day" means any day of the year on which national banking
institutions in New York are open to the public for conducting business and
are not required or authorized to close.
"Closing Date" shall have the meaning ascribed to such term in
Section 3.1 hereof.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Seller Property" shall have the meaning ascribed to such term in
Section 4.12(a) hereof.
"Contract" means any Contract, agreement, indenture, note, bond,
loan, instrument, lease, commitment or other arrangement or agreement.
"Effective Date" shall have the meaning ascribed to such term in
Section 1.1 hereof.
"Environmental Law" means any foreign, federal, state or local
statute, regulation, ordinance, or rule of common law as now or hereafter in
effect in any way relating to the protection of human health and safety or the
environment including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act (42 U.S.C. ss 9601 et seq.), the
Hazardous Materials Transportation Act (49 U.S.C. App. ss 1801 et seq.), the
Resource Conservation and Recovery Act (42 U.S.C. ss 6901 et seq.), the Clean
Water Act (33 U.S.C. ss 1251 et seq.), the Clean Air Act (42 U.S.C. ss 7401 et
seq.) the Toxic Substances Control Act (15 U.S.C. ss 2601 et seq.), the
39
Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. ss 136 et seq.),
and the Occupational Safety and Health Act (29 U.S.C. ss 651 et seq.), and the
regulations promulgated pursuant thereto.
"Financial Statements" shall have the meaning ascribed to such term
in Section 4.8.
"GAAP" means generally accepted United States accounting principles
as of the date hereof.
"Required Approvals" means the licenses, consents, and approvals
required to be obtained by the Purchaser in connection with the acquisition of
the Membership Interests and operation of the business of DES or FMS from all
licensing authorities having jurisdiction over the business of DES or FMS or
any part of it.
"Governmental Body" means any government or governmental or
regulatory body thereof, or political subdivision thereof, whether federal,
state, local or foreign, or any agency, instrumentality or authority thereof,
or any court or arbitrator (public or private).
"Hazardous Material" means any substance, material or waste which
is regulated by the United States, or any state or local governmental
authority of the State of Florida including, without limitation, petroleum and
its by-products, asbestos, and any material or substance which is defined as a
"hazardous waste," "hazardous substance," "hazardous material," "restricted
hazardous waste," "industrial waste," "solid waste," "contaminant,"
"pollutant," "toxic waste" or "toxic substance" under any provision of
Environmental Law;
"HSR Act" shall mean the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements
Act of 1976.
"Law" means any federal, state, local or foreign law (including
common law), statute, code, ordinance, rule, regulation or other requirement.
"Legal Proceeding" means any judicial, administrative or arbitral
actions, suits, proceedings (public or private), claims or governmental
proceedings.
"Lien" means any lien, pledge, mortgage, deed of trust, security
interest, claim, lease, charge, option, right of first refusal, easement,
servitude, transfer restriction under any shareholder or similar agreement,
encumbrance or any other restriction or limitation whatsoever.
"Material Adverse Change" means any material adverse change in the
business, properties, results of operations, prospects, condition (financial
or otherwise) of the DES or FMS, taken as a whole.
"Material Adverse Effect" means any effect which has resulted in,
or is reasonably likely to result in, a Material Adverse Change.
"Material Contracts" shall have the meaning ascribed to such terms
in Section 4.15.
"Order" means any order, injunction, judgment, decree, ruling,
writ, assessment or arbitration award.
40
"Permits" means any approvals, authorizations, consents, licenses,
permits or certificates.
"Permitted Exceptions" means (i) all defects, exceptions,
restrictions, easements, rights of way and encumbrances disclosed in policies
of title insurance which have been made available to Purchaser; (ii) statutory
liens for current taxes, assessments or other governmental charges not yet
delinquent or the amount or validity of which is being contested in good faith
by appropriate proceedings, provided an appropriate reserve is established
therefore; (iii) mechanics', carriers', workers', repairers' and similar Liens
arising or incurred in the ordinary course of business that are not material
to the business, operations and financial condition of the property so
encumbered or the Sellers; (iv) zoning, entitlement and other land use and
environmental regulations by any Governmental Body, provided that such
regulations have not been violated; and (v) such other imperfections in title,
charges, easements, restrictions and encumbrances which do not materially
detract from the value of or materially interfere with the present use of any
Company Property subject thereto or affected thereby.
"Person" means any individual, corporation, partnership, firm,
joint venture, association, joint-membership interest company, trust,
unincorporated organization, Governmental Body or other entity.
"Personal Property Lease" shall have the meaning ascribed to such
term in Section 4.13.
"Property Lease" shall have the meaning ascribed to such term in
Section 4.12.
"Release" means any release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, or leaching into the
indoor or outdoor environment, or into or out of any property;
"Remedial Action" means all actions to (x) clean up, remove, treat
or in any other way address any Hazardous Material; (y) prevent the Release of
any Hazardous Material so it does not endanger or threaten to endanger public
health or welfare or the indoor or outdoor environment; or (z) perform
pre-remedial studies and investigations or post-remedial monitoring and care.
"Sellers' Representative" shall have the meaning ascribed to such
term in Section 6.6(a) hereof.
"Subsidiaries" means any Persons of which a majority of the
outstanding voting securities or other voting equity interests are owned,
directly or indirectly, by DES or FMS.
"Taxes" means (i) all federal, state, local or foreign taxes,
charges, fees, imposts, levies or other assessments, including, without
limitation, all net income, gross receipts, capital, sales, use, ad valorem,
value added, transfer, franchise, profits, inventory, capital membership
interest, license, withholding, payroll, employment, social security,
unemployment, excise, severance, stamp, occupation, property and estimated
taxes, customs duties, fees, assessments and charges of any kind whatsoever,
(ii) all interest, penalties, fines, additions to tax or additional amounts
imposed by any taxing authority in connection with any item described in
clause (i) and (iii) any transferee liability in respect of any items
described in clauses (i) and/or (ii).
41
"Tax Return" means all returns, declarations, reports, estimates,
information returns and statements required to be filed in respect of any
Taxes.
10.2 Payment of Sales, Use or Similar Taxes. All sales, use, transfer,
intangible, recordation, documentary stamp or similar Taxes or charges, of any
nature whatsoever, applicable to, or resulting from, the transactions
contemplated by this Agreement shall be borne by DES, FMS and the respective
Sellers.
10.3 Expenses. Except as otherwise provided in this Agreement, DES, FMS,
the Sellers and the Purchaser shall each bear its own expenses incurred in
connection with the negotiation and execution of this Agreement and each other
agreement, document and instrument contemplated by this Agreement and the
consummation of the transactions contemplated hereby and thereby.
10.4 Specific Performance. DES, FMS and the Sellers acknowledge and
agree that the breach of this Agreement would cause irreparable damage to the
Purchaser and that the Purchaser will not have an adequate remedy at law.
Therefore, the obligations of DES, FMS and the Sellers under this Agreement,
including, without limitation, the Sellers' obligation to sell the Membership
Interests to the Purchaser, shall be enforceable by a decree of specific
performance issued by any court of competent jurisdiction, and appropriate
injunctive relief may be applied for and granted in connection therewith.
Such remedies shall, however, be cumulative and not exclusive and shall be in
addition to any other remedies which any party may have under this Agreement
or otherwise.
10.5 Further Assurances. Each of the Parties agree to execute and
deliver such other documents or agreements and to take such other action as
may be reasonably necessary or desirable for the implementation of this
Agreement and the consummation of the transactions contemplated hereby.
10.6 Submission to Jurisdiction; Consent to Service of Process.
(a) The parties hereto hereby irrevocably submit to the
non-exclusive jurisdiction of any federal or state court located within the
State of Nevada over any dispute arising out of or relating to this Agreement
or any of the transactions contemplated hereby and each party hereby
irrevocably agrees that all claims in respect of such dispute or any suit,
action proceeding related thereto may be heard and determined in such courts.
The parties hereby irrevocably waive, to the fullest extent permitted by
applicable law, any objection which they may now or hereafter have to the
laying of venue of any such dispute brought in such court or any defense of
inconvenient forum for the maintenance of such dispute. Each of the parties
hereto agrees that a judgment in any such dispute may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
(b) Each of the parties hereto hereby consents to process being
served by any party to this Agreement in any suit, action or proceeding by the
mailing of a copy thereof in accordance with the provisions of Section 10.10.
10.7 Entire Agreement; Amendments and Waivers. This Agreement (including
the schedules and exhibits hereto) represents the entire understanding and
agreement between the parties hereto with respect to the subject matter hereof
and can be amended, supplemented or changed, and any provision hereof can be
waived, only by written instrument making specific reference to this Agreement
signed by the party against whom enforcement of any such amendment,
42
supplement, modification or waiver is sought. No action taken pursuant to
this Agreement, including without limitation, any investigation by or on
behalf of any party, shall be deemed to constitute a waiver by the party
taking such action of compliance with any representation, warranty, covenant
or agreement contained herein. The waiver by any party hereto of a breach of
any provision of this Agreement shall not operate or be construed as a further
or continuing waiver of such breach or as a waiver of any other or subsequent
breach. No failure on the part of any party to exercise, and no delay in
exercising, any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of such right, power or
remedy by such party preclude any other or further exercise thereof or the
exercise of any other right, power or remedy. All remedies hereunder are
cumulative and are not exclusive of any other remedies provided by law.
10.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Nevada.
10.9 Table of Contents and Headings. The table of contents and section
headings of this Agreement are for reference purposes only and are to be given
no effect in the construction or interpretation of this Agreement.
10.10 Notices. All notices and other communications under this
Agreement shall be in writing and shall be deemed given when delivered
personally or mailed by certified mail, return receipt requested, to the
parties (and shall also be transmitted by facsimile to the Persons receiving
copies thereof) at the following addresses (or to such other address as a
party may have specified by notice given to the other party pursuant to this
provision):
If to DES, or any of DES Sellers, to:
Diabetes Education Sources, LLC
00000 Xxxxxxxxx Xx., Xxxxx 0
Xx. Xxxxxx, Xxxxxxx 00000
If to FMS or any of FMS Sellers, to:
Freedom Medical Sources, LLC
00000 Xxxxxxxxx Xx., Xxxxx 0
Xx. Xxxxxx, Xxxxxxx 00000
If to Purchaser, to:
Fortune Entertainment Corporation
(to be known as Medical Solutions Corporation)
0000 Xxxx Xxxxxx Xxx, Xxxxx 000
Xxx Xxxxx, XX 00000
with a copy to:
Xxxxxxx Xxxxx & Xxxxxxxxxx
Attn: Puoy X. Xxxxxxxxxx, Esq.
000 X. Xxxxxx Xx. Xxxxx Xx. 000
Xxx Xxxxx, XX 00000
(000) 000-0000
(000) 000-0000 (fax)
43
10.11 Severability. If any provision of this Agreement is invalid or
unenforceable, the balance of this Agreement shall remain in effect.
10.12 Binding Effect; Assignment. This Agreement shall be binding upon
and inure to the benefit of the parties and their respective successors and
permitted assigns. Nothing in this Agreement shall create or be deemed to
create any third party beneficiary rights in any person or entity not a party
to this Agreement except as provided below. No assignment of this Agreement
or of any rights or obligations hereunder may be made by either DES, FMS, the
Sellers or the Purchaser (by operation of law or otherwise) without the prior
written consent of the other parties hereto and any attempted assignment
without the required consents shall be void; provided, however, that the
Purchaser may assign this Agreement and any or all rights or obligations
hereunder (including, without limitation, the Purchaser's rights to purchase
the Membership Interests and the Purchaser's rights to seek indemnification
hereunder) to any Affiliate of the Purchaser. Upon any such permitted
assignment, the references in this Agreement to the Purchaser shall also apply
to any such assignee unless the context otherwise requires.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the
date first written above.
"PURCHASER"
FORTUNE ENTERTAINMENT CORPORATION
(to be known as MEDICAL SOLUTIONS
CORPORATION)
By: /s/ Xxxxxxx X. Xxxxxxxxx
Name: Xxxxxxx X. Xxxxxxxxx
Title CEO and President
"DES"
DIABETES EDUCATION SOURCES, LLC,
a Florida limited liability company
By: /s/ Xxxxx X. Xxxxxx
Name: Xxxxx X. Xxxxxx
Title: Manager
"FMS"
FREEDOM MEDICAL SOURCE, LLC,
a Florida limited liability company
By: /s/ Xxxxxx Xxxxxx
Name: Xxxxxx Xxxxxx
Title: Manager
44
"DES SELLERS"
XXXXX XXXXX, LLC, a Florida limited
liability company
By: /s/ Xxxxxx Xxxxxx
Name: Xxxxxx Xxxxxx
Title: Manager
XXXXX X. XXXXXX
/s/ Xxxxx X. Xxxxxx
"FMS SELLERS"
XXXXXX X. XXXXXX
/s/ Xxxxxx X Xxxxxx
XXXXX X. XXXXXX
/s/ Xxxxx X. Xxxxxx
XXXX X. XXXXXX
/s/ Xxxx X. Xxxxxx
XXXXX X. XXXXXX
/s/ Xxxxx X. Xxxxxx
DIABETES EDUCATION SOURCES LLC
By: /s/ Xxxxx X. Xxxxxx
Name: Xxxxx X. Xxxxxx
Title: Manager
45
EXHIBIT A
Diabetes Education Sources, LLC
Units of
Membership
Member Name Interest % Owned
----------- ---------- --------
Xxxxx X. Xxxxxx 45%
Xxxxx Xxxxx, LLC * 55%
100% Total
Freedom Medical Sources, LLC
Units of
Membership
Member Name Interest % Owned
----------- ---------- --------
Xxxxx X. Xxxxxx 20%
Xxxxx X. Xxxxxx 12%
Xxxx X. Xxxxxx 13%
Xxxxxx X. Xxxxxx 20%
Diabetes Education
Sources, LLC 35%
100% Total
Xxxxx Xxxxx, LLC
Units of
Membership
Member Name Interest % Owned
----------- ---------- --------
Xxxxxx X. Xxxxxx 30%
Xxxxxxx X. Xxxxxx 22%
Xxxxxxx X. Xxxxxxx 17%
Xxxxx X. Xxxxxxx 17%
Xxxx X. Xxxxxxx 7%
Xxxxxx X. Xxxxxxxx 7%
100% Total
