Execution Copy
================================================================================
STOCK PURCHASE AGREEMENT
By and Among
MOMS PHARMACY, INC.
as Buyer
ALLION HEALTHCARE, INC.,
as Parent
And
XXXXX X. XXXXXXXX AND XXXXX X. XXXXXXXX,
COLLECTIVELY, as Sellers
Dated May 1, 2003
================================================================================
TABLE OF CONTENTS
PAGE
-i-
NYK 826675-13.053645.0010
Exhibit 2.1
ARTICLE 1 THE TRANSACTION.....................................................1
1.1 Sale and Purchase of the Shares...........................1
1.2 Purchase Price............................................2
1.3 Transfer Taxes............................................2
1.4 Closing Time and Place....................................2
1.5 Payment of Purchase Price at Closing......................2
1.6 Delivery of the Warrants at Closing.......................3
1.7 Post Closing Purchase Price Adjustment....................3
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF SELLERS...........................3
2.1 Authorization and Enforceability..........................3
2.2 Title to Shares...........................................4
2.3 Organization..............................................4
2.4 Qualification; Location of Business and Assets............4
2.5 Capitalization and Ownership..............................4
2.6 Subsidiaries..............................................4
2.7 Minute Book, Etc..........................................4
2.8 Financial Statements......................................5
2.9 No Conflicts; No Violation of Law or Agreements...........5
2.10 Litigation and Claims.....................................6
2.11 Brokers...................................................6
2.12 No Undisclosed Liabilities................................6
2.13 No Changes................................................6
2.14 Taxes.....................................................8
2.15 Accounts Receivable.......................................9
2.16 Litigation and Claims.....................................9
2.17 Material Contracts........................................9
2.18 Environmental Matters; Worker Health & Safety Matters....11
2.19 Compliance with Laws.....................................11
2.20 Consents.................................................12
2.21 Real Estate..............................................12
2.22 Personal Property........................................13
2.23 Intellectual Property....................................13
2.24 Condition and Sufficiency of the Target Assets...........13
2.25 Transactions with Related Parties........................14
2.26 Employees; Officers and Directors........................14
2.27 Labor Relations..........................................14
2.28 Insurance................................................14
2.29 Employee Benefit Plans...................................15
2.30 Customers................................................16
2.31 Accounts; Lockboxes and Safe Deposit Boxes...............16
2.32 Licenses.................................................16
-i-
TABLE OF CONTENTS
(CONTINUED)
PAGE
2.33 Payment Programs.........................................17
2.34 Fraud and Abuse..........................................17
2.35 Physician Self-Referrals.................................17
2.36 Controlled Substances....................................17
2.37 Disclosure...............................................17
ARTICLE 3 REPRESENTATION AND WARRANTIES OF BUYER AND PARENT..................18
3.1 Organization; Qualification; Authority
and Enforceability ..................................18
3.2 No Conflict; No Violation of Laws or Agreements..........18
3.3 Consents.................................................18
3.4 Litigation and Claims....................................19
3.5 SEC Reports, Etc.........................................19
3.6 Investment Intent........................................19
3.7 Brokers..................................................19
ARTICLE 4 CERTAIN OBLIGATIONS................................................19
4.1 Conduct of Business Pending Closing......................19
4.2 Ordinary Course..........................................20
4.3 Preservation of Businesses...............................20
4.4 Maintenance of Employees.................................20
4.5 Insurance................................................21
4.6 Cooperation..............................................21
4.7 Access, Information, and Documents.......................21
4.8 Acquisition Proposals....................................21
4.9 Controlled Substances Registration.......................21
4.10 Guaranties...............................................21
4.11 Related Party Balances...................................22
4.12 Lease Extension..........................................22
4.13 D&O Insurance............................................22
4.14 Patent Application Assignment............................22
4.15 Management Representation Letters........................22
ARTICLE 5 CONDITIONS TO CLOSING..............................................22
5.1 Conditions Precedent to Obligations of Buyer and Parent..22
5.2 Conditions Precedent to the Obligations of the Sellers...23
ARTICLE 6 DELIVERIES AND PROCEEDINGS AT CLOSING..............................24
6.1 Closing Deliveries by Seller.............................24
6.2 Deliveries By Buyer and Parent...........................25
ARTICLE 7 TERMINATION........................................................26
ARTICLE 8 CERTAIN ADDITIONAL COVENANTS.......................................26
8.1 Costs and Expenses.......................................26
8.2 No Solicitation..........................................26
8.3 Non-Competition..........................................26
8.4 Confidential Information; Confidentiality................27
8.5 Adjustments to Purchase Price............................27
8.6 Section 338 Election.....................................27
-ii-
TABLE OF CONTENTS
(CONTINUED)
PAGE
ARTICLE 9 INDEMNIFICATION....................................................28
9.1 Survival.................................................28
9.2 Indemnification by the Sellers...........................28
9.3 Indemnification by Buyer and Parent......................28
9.4 Materiality..............................................29
9.5 Limitations..............................................29
9.6 Notice and Opportunity to Defend.........................30
9.7 Claims for Indemnity.....................................30
9.8 Adjustments to Indemnification Payments..................31
9.9 No Other Representations, Etc.; Rescission...............31
9.10 Sole and Exclusive Remedy................................32
9.11 Survival of Indemnification Obligations..................32
ARTICLE 10 MISCELLANEOUS......................................................32
10.1 Notices..................................................32
10.2 Successors and Assigns...................................33
10.3 Construction.............................................33
10.4 Governing Law............................................34
10.5 Consent to Jurisdiction..................................34
10.6 Headings.................................................34
10.7 Counterparts.............................................34
10.8 Further Assurances.......................................34
10.9 Course of Dealing........................................34
10.10 Severability.............................................34
10.11 Entire Agreement.........................................35
-iii-
TABLE OF CONTENTS
(CONTINUED)
PAGE
LIST OF EXHIBITS
Exhibit A Definitions
Exhibit B Form of Warrant Agreement
Exhibit C Form of Security Agreement
Exhibit D Form of Notes
Exhibit E Form of Employment Agreement
Exhibit F Form of Consulting Agreement
Exhibit G Form of Officer's Certifications
Exhibit H Form of Legal Opinion of Xxxxxx Godward LLP
Exhibit I Form of Legal Opinion of XxXxxxxxx, Will & Xxxxx
Exhibit J Form of General Release
Exhibit K Form of Torrance Lease
Exhibit L April 16 Balance Sheet
-iv-
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (the "AGREEMENT"), is made and entered
into this 1st day of May, 2003, by and among MOMS PHARMACY, INC., a California
corporation ("BUYER"), its sole stockholder, ALLION HEALTHCARE, INC., a Delaware
corporation ("PARENT"), XXXXX X. XXXXXXXX ("XXXXX" or "SELLER") and XXXXX X.
XXXXXXXX ("XXXXX" or "SELLER" and together with Xxxxx, the "SELLERS").
BACKGROUND:
Sellers own all of the issued and outstanding shares of capital stock
of Medicine Made Easy ("TARGET"), a California corporation (the "SHARES").
Target operates a specialty retail pharmacy business in the State of
California (the "BUSINESS").
Pursuant to a non-binding letter of intent among Target, the Sellers
and Parent, Parent has paid Target Three Hundred Thousand Dollars ($300,000) as
consideration for being permitted to conduct a due diligence investigation of
Target.
Parent desires to and will purchase through Buyer and Sellers desire
to and will sell, transfer and deliver to Buyer, all the Shares on the terms and
conditions of this Agreement.
All capitalized (and as noted herein, uncapitalized) words or
expressions used in this Agreement (including the Schedules and Exhibits annexed
hereto) have the meanings specified in EXHIBIT A hereto (such meanings to be
equally applicable to both the singular and plural forms of the terms defined).
In consideration of the foregoing, the mutual representations,
warranties and covenants set forth in this Agreement, and for the good and
valuable consideration, the sufficiency of which is hereby acknowledged, the
parties hereto agree as follows:
ARTICLE 1
THE TRANSACTION
1.1 SALE AND PURCHASE OF THE SHARES. Upon the terms and subject to
the conditions contained in this Agreements, at the Closing:
(a) Each Seller shall sell, transfer, assign and convey the
Shares owned by such Seller to Buyer and shall deliver to Buyer (or its
Designated Subsidiary) a stock certificate or certificates representing all of
such Shares, duly endorsed in blank or with duly executed stock powers attached,
in proper form for transfer, with all signatures guaranteed and with appropriate
transfer stamps, if any, affixed, free and clear of any Lien; and
(b) Buyer or its Designated Subsidiary shall purchase, acquire
and accept from the Sellers all right, title and interest in and to the Shares.
1.2 PURCHASE PRICE. The aggregate consideration for the Shares is
Four Million Six Hundred Fifty Thousand Dollars ($4,650,000) (the "PURCHASE
PRICE") and warrants to purchase 227,273 shares of common stock of Parent at a
price per share of $11.00 (the "Warrants"), in substantially the form attached
hereto as EXHIBIT B, payable in accordance with Section 1.5 and Section 1.6, and
subject to adjustment after the Closing as set forth in Section 1.7.
1.3 TRANSFER TAXES. Sellers shall pay all stock transfer Taxes,
regarding fees and other sales, transfer, use, purchase or similar Taxes
resulting from the transactions contemplated hereby.
1.4 CLOSING TIME AND PLACE. The closing of the transactions
contemplated by this Agreement (the "CLOSING") will take place at the offices of
XxXxxxxxx, Will & Xxxxx, 00 Xxxxxxxxxxx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000 at 10:00
a.m. on the date of this Agreement. The date on which the Closing occurs is
hereinafter referred to as the "CLOSING DATE." The Closing will occur
contemporaneously with the closing of the Related Transactions and will be
effective at 11:59 p.m. on the Closing Date.
1.5 PAYMENT OF PURCHASE PRICE AT CLOSING. At the Closing, Buyer or
Parent shall pay the Purchase Price as follows:
(a) Two Million Two Hundred Fifty Thousand Dollars ($2,250,000),
as follows:
(i) the amount set forth on the Indebtedness Payoff Letter,
by wire transfer of immediately available funds to the account of the Creditor
named therein.
(ii) the remainder of the Two Million Two Hundred Fifty
Thousand Dollars ($2,250,000) allocated between the Sellers as indicated on
Schedule 1.5 of the Sellers' Disclosure Schedule, by wire transfer of
immediately available funds to the account of each respective Seller as such
Seller shall direct in writing to Buyer no later than two (2) business days
before the Closing Date.
(b) Parent will deliver subordinated, secured promissory notes in
the aggregate principal amount of One Million One Hundred Fifty Thousand
Dollars, which shall be due and payable no later than the first (1st)
anniversary of the Closing Date, allocated between the Sellers as indicated on
Schedule 1.5 of the Sellers' Disclosure Schedule (the "1 YEAR NOTES"), together
with a Security Agreement in substantially the form attached hereto as EXHIBIT
C.
(c) Parent will deliver subordinated, secured promissory notes,
in the aggregate principal amount of One Million Two Hundred Fifty Thousand
Dollars, which shall be due and payable no later than the second (2nd)
anniversary of the Closing Date, allocated between the Sellers as indicated on
Schedule 1.5 of the Sellers' Disclosure Schedule (the "2 YEAR NOTES" and
together with the 1 Year Notes, the "NOTES"), together with a Security Agreement
in the form attached hereto as EXHIBIT C. The Notes shall be in the form
attached hereto as EXHIBIT D.
-2-
1.6 DELIVERY OF THE WARRANTS AT CLOSING. At the Closing, Parent shall
deliver the Warrants, allocated between the Sellers as indicated on Schedule 1.6
of the Sellers' Disclosure Schedule.
1.7 POST CLOSING PURCHASE PRICE ADJUSTMENT.
(a) After the Closing, Parent shall have full control over all
negotiations and settlement of the matters arising out of the content described
in the April 14, 2003 letter from Xxxxxxx Corporation to Target (the "XXXXXXX
LETTER"), but shall keep the Sellers informed of the status of such negotiations
and any such settlement and shall copy the Sellers on any applicable
correspondence received by Target or Parent, or sent by Target or Parent
relating to the subject matter described in the Xxxxxxx Letter. The amount of
any such settlement (the "SETTLEMENT AMOUNT") shall include reasonable
attorneys' fees incurred by Parent and Target in connection with the subject
matter described in the Xxxxxxx Letter in an amount not to exceed Twenty Five
Thousand Dollars ($25,000).
(b) In the event that the Settlement Amount is less than Two
Hundred Fifty Thousand Dollars ($250,000), Parent shall promptly, but in no
event later than three (3) business days following the payment of such
Settlement Amount, pay to Sellers (allocated between the Sellers according to
the percentage allocation schedule contained on Schedule 1.5 of the Sellers'
Disclosure Schedule), by wire transfer according to the wiring instructions
provided by each of the Sellers to Parent, an amount equal to Two Hundred Fifty
Thousand Dollars ($250,000) less the Settlement Amount.
(c) If the Settlement Amount is more than Two Hundred Fifty
Thousand Dollars ($250,000) (the amount above $250,000 being hereinafter
referred to as the "EXCESS SETTLEMENT AMOUNT"), Buyer and Parent shall be
entitled to indemnification by the Sellers as set forth in Article 9, including,
without limitation, Sections 9.2 and 9.5, for such additional amount.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF SELLERS
Except as set forth in correspondingly numbered sections of the
disclosure schedule delivered by the Sellers to Buyer on or before the date of
this Agreement (the "Sellers' Disclosure Schedule"), each Seller hereby jointly
and severally represents and warrants to Parent and Buyer, as of the date hereof
as follows:
2.1 AUTHORIZATION AND ENFORCEABILITY. Each Seller has all necessary
power and authority, as the case may be, to execute and deliver each Transaction
Agreement to which he is a party and to consummate the transactions contemplated
thereby. Each Seller's execution and delivery of, and the performance of his
obligations under, the Transaction Agreements to which he is a party has been
authorized by all necessary action. Each Transaction Agreement to which he is a
party has been duly executed and delivered on behalf of such Seller and
constitutes the legal, valid and binding obligation of such Seller, enforceable
against such Seller in accordance with its terms, subject to (i) applicable
bankruptcy, insolvency, reorganization, moratorium, or other
-3-
similar laws affecting the rights of creditors generally and (ii) rules of law
governing specific performance, injunctive relief and other equitable remedies.
2.2 TITLE TO SHARES. Each Seller owns of record and beneficially all
of the Shares set forth opposite their respective names on SCHEDULE 2.2 of the
Sellers' Disclosure Schedule free and clear of all Liens. There are no
outstanding securities, options, warrants, rights, agreements, calls,
subscription commitments, demands, or understandings relating to the sale or
disposition of any of the Shares, obligating either Seller to grant, offer or
enter into any of the foregoing, or relating to the voting or control of any
Shares.
2.3 ORGANIZATION. Target is a corporation duly organized, validly
existing, and in good standing under the laws of the state of its incorporation.
Copies of Target's Charter and Bylaws have been delivered to Buyer and are
correct, complete and in full force and effect.
2.4 QUALIFICATION; LOCATION OF BUSINESS AND ASSETS. Target is duly
qualified and in good standing as a foreign corporation and has all requisite
corporate power and authority to do business in the jurisdictions set forth on
SCHEDULE 2.4 of the Sellers' Disclosure Schedule, which jurisdictions are the
only jurisdictions wherein the character of the properties owned or leased or
the nature of activities conducted by Target make such qualification necessary.
Set forth on SCHEDULE 2.4 of the Sellers' Disclosure Schedule is each location
(specifying state, county, and city) where Target (a) has a place of business,
(b) owns or leases real property, (c) maintains inventory, and/or (d) maintains
employees.
2.5 CAPITALIZATION AND OWNERSHIP. The authorized capital stock of
Target consists of 1,000,000 shares of common stock, $0.01 par value per share,
of which 10,000 shares are issued and outstanding. The Sellers are the record
and beneficial owner of all the Shares. All the Shares have been duly
authorized, validly issued, are fully paid and nonassessable, were not issued in
violation of the terms of any agreement or other understanding binding upon
Target or any other Person and were issued in compliance with all applicable
federal and state securities or "blue-sky" laws and regulations. There are no
outstanding securities, options, warrants, rights, agreements, calls,
subscription commitments, demands, or understandings of any character
whatsoever, fixed or contingent, that directly or indirectly (i) call for the
issuance, sale or other disposition of any capital stock of Target and there are
no securities convertible into or exchangeable for any capital stock of Target
or (ii) obligate either Seller to grant, offer or enter into any of the
foregoing or (iii) relate to the voting or control of any capital stock of
Target. No person has any right to require Target or Seller to register any
securities of Target under any federal or state securities laws.
2.6 SUBSIDIARIES. Target does not, directly or indirectly, own any
equity ownership interest in, any Person.
2.7 MINUTE BOOK, ETC. The minute book, stock certificate book and
stock record book of each of Target is complete and the signatures therein are
the true signatures of the persons purporting to have signed the documents
contained therein. Such minute book contains accurate and complete minutes of
all meetings or written consents to action of the Boards of Directors and
shareholders of Target. All material corporate actions taken by Target have been
duly authorized or subsequently ratified. The Books and Records of Target have
been maintained on a consistent
-4-
basis in accordance with applicable laws and accurately reflect in all material
respects the condition, financial or otherwise, of Target.
2.8 FINANCIAL STATEMENTS.
(a) Attached hereto as SCHEDULE 2.8 of the Sellers' Disclosure
Schedule is (i) a true and correct copy of the unaudited balance sheet of Target
as of December 31, 2002 (the "FINANCIAL STATEMENT DATE") and the related
consolidated statements of profit and loss and cash flows for the fiscal year
then ended (collectively, the "UNAUDITED FINANCIAL STATEMENTS"), and (ii) the
unaudited balance sheet of Target and related statement of profit and loss as
of, and for the period beginning on January 1, 2003 and ended on April 30, 2003
(collectively, together with the Unaudited Financial Statements, the "FINANCIAL
STATEMENTS," with the Financial Statements as of and at April 30, 2003 being
referred to herein as the "INTERIM STATEMENTS").
(b) The Financial Statements: (i) were prepared from the Books
and Records of Target, which Books and Records have been maintained in
accordance with all legal and accounting requirements and completely and
accurately reflect all financial transactions of Target, including, without
limitation, the accounts receivable, accounts payable and revenue of Target for
the periods covered by and as at the dates of the Financial Statements: (ii)
were prepared in accordance with GAAP consistently applied; and (iii) present
fairly in all material respects the financial condition of Target and the
results of its operations for the periods covered by, and as at the dates of,
each of the Financial Statements except that the Interim Statements omit
footnote disclosures and do not reflect year-end adjustments which will not, in
the aggregate, be material. The statements of profit and loss included in the
Financial Statements do not contain any material items of special or
non-recurring income or other income not earned in the ordinary course of
business except as expressly specified therein.
2.9 NO CONFLICTS; NO VIOLATION OF LAW OR AGREEMENTS. The execution
and delivery by each Seller of each Transaction Agreement to which he is a party
does not, and the consummation by the Sellers of the transactions contemplated
hereby, will not:
(a) contravene any provision of Target's Charter or Bylaws;
(b) conflict with, constitute or result in any breach, default or
violation of (or an event which would, with or without the passage of time or
the giving of notice or both, constitute or result in a breach, default or
violation of) (i) any of the terms, conditions, or provisions of any indenture,
mortgage, loan, credit agreement, or any other instrument, contract, agreement
or commitment to which either Seller or Target is a party, or by which either
Seller or Target is bound or affected, (ii) any judgment or order of any
Governmental Authority applicable to either Seller or Target, or (iii) any law,
rule or regulation; except, in the case of (i) above, to the extent any such
breach, default or violation would not result in a Material Adverse Effect on
Target;
(c) result in the creation or imposition of any Lien upon any
Shares or upon any Target Assets or give to others any interests or rights
therein; or
(d) result in the acceleration of any liability or obligation of
Target (or give others the right to cause such acceleration); or
-5-
(e) result in the termination or loss of any right (or give
others the right to cause such a termination or loss) under any agreement or
contract to which either Seller or Target is a party or by which it may be
bound, or to which any Shares owned by such Seller or any Target Assets may be
subject.
2.10 LITIGATION AND CLAIMS. There are no Claims pending, or to the
best knowledge of the Seller, threatened which seek to delay or prevent the
consummation of the transactions contemplated by the Transaction Agreements or
which would be reasonably likely to adversely affect or restrict either Seller's
ability to perform his obligations under the Transaction Agreements.
2.11 BROKERS. Neither Seller nor any person acting on behalf of
either Seller has engaged, retained or incurred any liability to any broker,
investment banker, finder or agent, made any agreement or taken any other action
which would cause Target, Buyer, Parent or any Affiliates of Buyer or Parent to
be obligated to pay any broker's fee, commission or other fees with respect to
the sale of the Shares or as a result of the consummation of any of the
transactions contemplated hereby.
2.12 NO UNDISCLOSED LIABILITIES. Target has no material liability or
obligation of any nature, whether due or to become due, absolute, contingent, or
otherwise, whether direct or indirect, except (a) to the extent reflected as a
liability on the Financial Statements and the notes thereto, (b) material
liabilities incurred in the ordinary course of business (and not in violation of
this Agreement or any other agreement to which Target is a party or by which it
may be bound) and fully reflected as liabilities on the Interim Statements, (c)
as set forth on SCHEDULE 2.9 of the Sellers' Disclosure Schedule, or (d)
obligations to perform under the contracts disclosed in the disclosure schedule
of the Sellers.
2.13 NO CHANGES. Since March 31, 2002, Target has conducted its
business only in the ordinary course of business. Without limiting the
generality of the foregoing sentence, since March 31, 2002 there has not been:
(a) any change in the financial condition, assets, liabilities,
net worth, earning power, or business of Target, except for changes in the
ordinary course of business consistent with past practice, none of which,
individually or in the aggregate, has been or would reasonably be expected to
have a Material Adverse Effect on Target;
(b) any casualty, damage, destruction, or loss, whether or not
covered by insurance, adversely affecting the properties, business, or prospects
of Target, or any material deterioration in the operating condition of the
Target Assets, or any accidents in which any employees or other persons have
been killed or seriously injured;
(c) any Lien placed on any of the Target Assets;
(d) any declaration, setting aside or payment of a dividend or
other distribution in respect of any of the Shares or any direct or indirect
redemption, purchase or other acquisition of any of the Shares;
-6-
(e) any increase in the salaries or other compensation payable or
to become payable to, or any advance (excluding advances for ordinary business
expenses) or loan to either Seller or, any officer, director or employee of
Target (except normal merit increases made in the ordinary course of business
and consistent with past practice), or any increase in, or any addition to,
other benefits (including any bonus, profit-sharing, pension or other plan) to
which either Seller or any officers, directors or employees of Target may be
entitled, or any payments to any pension, retirement, profit-sharing, bonus or
similar plan except payments in the ordinary course of business and consistent
with past practice made pursuant to the Benefit Plans described on SCHEDULE 2.29
of the Sellers' Disclosure Schedule or any other payment of any kind to or on
behalf of either Seller or any such officer, director or employee (other than
payment of base compensation and reimbursement for reasonable business expenses
in the ordinary course of business consistent with past practice);
(f) any making or authorization of any capital expenditures in
excess of Five Thousand Dollars ($5,000);
(g) any cancellation or waiver of any right material to the
operation of the business of Target or any cancellation or waiver of any debts
or Claims of substantial value or any cancellation or waiver of any debts or
Claims against any Related Party;
(h) any sale, transfer, lease or other disposition of any
material Target Asset, except for inventory in the ordinary course of business;
(i) any termination or amendment to or suspension or termination
of, or receipt by Target or either Seller of any notice of breach or default of,
any material lease, contract or other agreement to which Target is a party or
from which Target, directly or indirectly, derives rights;
(j) any payment, discharge or satisfaction of any liability or
obligation (whether accrued, absolute, contingent or otherwise) by Target, other
than the payment, discharge or satisfaction, in the ordinary course of business
consistent with past practice, of liabilities or obligations shown or reflected
on the Financial Statements or incurred in the ordinary course of business since
the Financial Statement Date;
(k) any adverse change or any threat of any adverse change in
Target's relations with, or any loss or threat of loss of, suppliers or
customers which, individually or in the aggregate, had or is likely to have a
Material Adverse Effect on Target;
(l) any write-offs as uncollectible of any notes or accounts
receivable of Target or write-downs of the value of any assets or inventory by
Target, other than immaterial amounts or in the ordinary course of business
consistent with past practice;
(m) any material change by Target in any method of accounting or
keeping its books of account or accounting practices;
(n) any creation, incurrence, assumption or guarantee by Target
of any material obligation or liability (whether absolute, accrued, contingent
or otherwise and whether due or to become due), except in the ordinary course of
business consistent with past practice, or any creation,
-7-
incurrence, assumption or guarantee by Target of any material indebtedness for
money borrowed;
(o) any payment, loan or advance of any material amount to or in
respect of, or the sale, transfer or lease of any material Target Asset (whether
real, personal or mixed, tangible or intangible) to, or entering into of any
agreement, arrangement or transaction with, any Related Party, except for (i)
directors' fees and (ii) compensation to the officers and employees of Target at
rates not exceeding the rates of compensation disclosed on SCHEDULE 2.26 of the
Sellers' Disclosure Schedule hereto;
(p) any disposition of (or failure to keep in effect any rights
in, to or for the use of) any patent, trademark, service xxxx, trade name or
copyright, or any disclosure to any Person not an employee or other disposal of
any trade secret, process or know-how;
(q) any other transaction, agreement or event outside the
ordinary course of Target's business or inconsistent with past practice; or
(r) any agreement or commitment to take or do any of the actions
described in subsections (a) through (q) above.
2.14 TAXES.
(a) Except as set forth on SCHEDULE 2.14 of the Sellers'
Disclosure Schedule, Target has (i) timely filed all Returns required to be
filed by it with respect to all Taxes, including without limitation Returns for
the fiscal year ended December 31, 2002 (which Returns have been prepared in
accordance with all applicable laws and requirements and are correct and
complete), (ii) paid all Taxes required to be paid by it, including without
limitation in connection with all Returns for the fiscal year ended December 31,
2002, or such Taxes have been paid on its behalf, and (iii) all Taxes that are
required to be collected or withheld have been duly collected or withheld and
any such amounts that are required to be remitted to any taxing authority have
been duly remitted.
(b) The accruals for Taxes contained in the Financial Statements
are not less than all unpaid liabilities for Taxes for all periods ended on or
before the respective dates of such Financial Statements and include adequate
provisions for all deferred Taxes, and nothing has occurred subsequent to such
dates to make any of such accruals inadequate. All Taxes for periods beginning
after the dates of the Interim Statements have been paid or are adequately
reserved against and will be reflected in Financial Statements. Target has (i)
timely filed all information returns or reports, including Forms 1099, which are
required to be filed and (ii) accurately reported all information required to be
included on such returns or reports. True copies of federal and state income tax
returns of Target for each of the fiscal years ended December 31, 1999 through
December 31, 2002 have been delivered to Buyer.
(c) No representative of any government taxing authority has made
a pending proposal (whether in writing or verbal, formal or informal) to assert
any deficiency in Taxes, adjust any Return, or revise the manner in which any
Tax liability is determined with respect to Target. Except as disclosed on
SCHEDULE 2.14 of the Sellers' Disclosure Schedule, no Return of Target has been
audited by the relevant authorities where any deficiencies or proposed
-8-
deficiencies resulting from such audit have not been paid or adequately reserved
in the Financial Statements. All Returns with respect to which the statute of
limitations has not expired are disclosed on SCHEDULE 2.14 of the Sellers'
Disclosure Schedule. To Sellers' best knowledge, no Return is under examination
by any taxing authority.
2.15 ACCOUNTS RECEIVABLE. All of the accounts and notes receivable of
Target represent amounts receivable for goods and services actually delivered
(or in the case of non-trade accounts or notes represent amounts receivable in
respect of other bona-fide business transactions), have arisen in the ordinary
course of business, are free of any Lien (except as set forth on SCHEDULE 2.15
of the Sellers' Disclosure Schedule), are not subject to any valid counterclaims
or offsets and have been billed and are generally due in the normal and ordinary
course of business, except to the extent of a reserve in an amount not in excess
of the reserve for doubtful accounts reflected on the Financial Statements.
SCHEDULE 2.15 of the Sellers' Disclosure Schedule sets forth the total amount of
accounts or notes receivable of Target outstanding as of a date not more than
thirty (30) days prior to the date hereof.
2.16 LITIGATION AND CLAIMS. Except as set forth on SCHEDULE 2.16 of
the Sellers' Disclosure Schedule, there is no Claim pending or, to the best
knowledge of the Sellers, threatened (and, to the best knowledge of the Sellers,
no state of facts exist which reasonably could be expected to lead to any such
Claim) by, against or affecting or in any way relating to Target, the Business
or, any Target Asset before any Governmental Authority, or any arbitrator. There
are presently no outstanding judgments, decrees, or orders of any Governmental
Authority, any arbitrator or any other Person against or affecting Target, the
Business or any Target Asset. Nothing listed on SCHEDULE 2.16 of the Sellers'
Disclosure Schedule could reasonably be expected to have a Material Adverse
Effect on Target.
2.17 MATERIAL CONTRACTS.
(a) CONTRACTS. Except as set forth in SCHEDULE 2.17(A) of the
Sellers' Disclosure Schedule, there are no contracts, agreements, arrangements,
commitments, instruments, plans or leases, oral or written (collectively, the
"CONTRACTS") to which Target is a party or by which it is bound, meeting any of
the following descriptions:
(i) any Contract for consulting or other services obligating
Target to payments of more than Ten Thousand Dollars ($10,000) annually or
having a duration in excess of one (1) year;
(ii) any Contract relating to the management of Target;
(iii) any contract or agreement for the employment of any
person with a base annual compensation of Thirty Thousand Dollars ($30,000) or
more;
(iv) any Contract relating to the lease of machinery,
equipment or other personal property involving payment of fixed rentals in
excess of Ten Thousand Dollars ($10,000) in the aggregate for any such lease
during the current term thereof or any renewal term to which Target is bound;
-9-
(v) any Contract for the purchase of any materials or
supplies in excess of Five Thousand Dollars ($5,000);
(vi) any Contract for the purchase, sale or transfer of
equipment or any construction or other similar agreement involving any
expenditure in excess of Ten Thousand Dollars ($10,000);
(vii) any Contract evidencing or related to indebtedness,
obligations or liability for borrowed money, or liability for the deferred
purchase price of property, in excess of Ten Thousand Dollars ($10,000)
(excluding trade payables incurred in the ordinary course of business consistent
with past practice), or any Contract of guaranty, indemnification or other
similar commitment relating to the obligations or liabilities of any other
Person;
(viii) any Contract involving a sharing of profits, joint
venture or partnership;
(ix) any Contract relating to sales agency, brokerage,
distribution or similar matters;
(x) any Contract containing covenants limiting the freedom
of Target to compete in any line of business or in any area or with any Person;
(xi) any other Contract relating to orders for future
purchase or delivery of goods or retention of services which is material to
Target or which has an aggregate future liability greater than Ten Thousand
Dollars ($10,000); or
(xii) any other Contract relating to the Business, except
Contracts excluded by an express exception from the descriptions set forth in
Subparagraphs 2.17(a)(ii) through 2.17(a)(xi) above and except such Contracts
which are terminable on less than thirty (30) days' notice without penalty or
payment or involving expenditures of less than Ten Thousand Dollars ($10,000) in
the aggregate.
(b) CONTRACT COMPLIANCE. The Contracts listed on SCHEDULE 2.17(A)
of the Sellers' Disclosure Schedule are all of the Contracts which are material
to the Business. Copies of all such Contracts have been provided to Buyer, are
true, correct and complete and have been subject to no amendment, extension or
modification, except such as are described in SCHEDULE 2.17(A) of the Sellers'
Disclosure Schedule. Each Contract referred to in SCHEDULE 2.17(A) of the
Sellers' Disclosure Schedule is valid and binding as to Target and, to the best
knowledge of the Sellers, as to any counterparty thereto and, with respect to
such Contracts, there is no material default by Target or, to the best knowledge
of the Sellers, by any counterparty thereto, and, to the best knowledge of the
Sellers, no event which, with notice or the passage of time or both, would
constitute such a default by Target, or by any counterparty thereto. No party
has any right to cancel, terminate or modify any of the Contracts by reason of
the transactions contemplated under this Agreement.
-10-
2.18 ENVIRONMENTAL MATTERS; WORKER HEALTH & SAFETY MATTERS.
(a) No material quantity of Hazardous Substances has been
generated, transported, used, disposed, stored or treated by Target. No material
quantity of Hazardous Substances has been released, discharged, disposed,
transported, placed in, or on, or been caused or permitted by Target to enter,
the soil or water in, under or upon any real property owned, leased or operated
by Target.
(b) Target has complied with all applicable Environmental Laws
(as defined below) in all material respects. There is no pending or, to the best
knowledge of the Sellers, or overtly threatened civil or criminal litigation,
written notice of violation, formal administrative proceeding, or investigation,
inquiry or information request specifically directed to Target by any
Governmental Entity, relating to any Environmental Law involving Target. For
purposes of this Agreement, "ENVIRONMENTAL LAW" means any federal, state, local
or foreign law, statute, rule or regulation or the common law relating to the
protection of human health or the environment, including without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA"), the Resource Conservation and Recovery Act of 1976, and any statute,
regulation or order pertaining to (i) the treatment, storage, disposal,
generation and transportation of industrial, toxic or hazardous materials or
substances or solid or hazardous waste; (ii) air, water and noise pollution;
(iii) groundwater and soil contamination; (iv) the release or threatened release
into the environment of industrial, toxic or hazardous materials or substances,
or solid or hazardous waste, including without limitation, emissions,
discharges, injections, spills, escapes or dumping of pollutants, contaminants,
or chemicals; (v) the protection of wildlife, marine life and wetlands,
including without limitation all endangered and threatened species; (vi) storage
tanks, vessels, abandoned or discarded barrels, containers and other closed
receptacles; (vii) the health and safety of employees and other persons; and
(viii) the manufacture, processing, use, distribution, treatment, storage,
disposal, transportation or handling of pollutants, contaminants, toxic or
hazardous materials or substances or oil or petroleum products or solid or
hazardous waste. As used in this Section 2.18, the term "release" shall have the
meaning set forth in CERCLA.
(c) The Sellers have made available to Buyer true and complete
copies of all of the other permits, licenses franchises, certificates,
concessions and other governmental approvals and authorizations held by Target
or any of the owners, occupants, subcontractors, sublessees, licensees, or
operators of the Real Property Interests pertaining to such Real Property
Interests or the operations of Target, as amended, supplemented and modified
through the date hereof (the "LICENSES"). SCHEDULE 2.18(A) of the Sellers'
Disclosure Schedule contains a list of all such Licenses.
(d) Target is in compliance in all material respects with all
requirements of Worker Health and Safety Laws, and is not subject to any
cessation orders or cease and desist orders issued by any other health and
safety regulatory agency.
2.19 COMPLIANCE WITH LAWS. Any other more specific provisions of this
Article 2 2notwithstanding the business, operations and assets of Target have
been conducted and are in compliance in all material respects with all
applicable federal, state, local or foreign laws, rules, regulations,
ordinances, judgments, decrees, orders or other requirements of any Governmental
-11-
Authority. Nothing listed on SCHEDULE 2.19 of the Sellers' Disclosure Schedule,
either individually or when aggregated with other listing on the Sellers'
disclosure schedule could reasonably be expected to have a Material Adverse
Effect on Target.
2.20 CONSENTS. Except as set forth on SCHEDULE 2.20 of the Sellers'
Disclosure Schedule, which separately lists (i) all Required Permits and
Consents to be obtained prior to Closing and (ii) all other Permits and Consents
which may be obtained after Closing, no consent, approval, or authorization of,
or registration or filing with, any Person, including any Governmental Authority
is required in connection with the execution and delivery of the Transaction
Agreements by the Sellers or the consummation by the Sellers of the transactions
contemplated hereby, or for the continuation of the Business after Closing.
2.21 REAL ESTATE.
(a) OWNED REAL PROPERTY INTERESTS. Target does not own any land,
or interests in real property, including easements, rights of way and options.
(b) LEASED REAL PROPERTY INTERESTS. SCHEDULE 2.21(B) of the
Sellers' Disclosure Schedule lists (i) by legal description reasonably
acceptable to Buyer all material real property and interests in real property,
including easements, rights of way and options leased by Target from or to a
third person (the "LEASED REAL PROPERTY INTERESTS" and any other interest in
real estate omitted from SCHEDULE 2.21(B) of the Sellers' Disclosure Schedule
shall be defined as the "REAL PROPERTY INTERESTS"); (ii) each lease, sublease,
assignment, surface, wheelage and other agreement, instrument and consent
pursuant to which Target leases, occupies or uses the Leased Real Property
Interests, or has subleased or otherwise granted to others any interests
therein, copies of which have been previously provided to Buyer (collectively,
the "REALTY LEASES"); and (iii) the identity of each lessor, lessee, consenting
party, guarantor, if applicable, and any other party to any of the Realty
Leases. Except for the Permitted Liens, each of the Realty Leases is valid and
binding without further sublease or assignment and in full force and effect as
to Target and, to the best knowledge of the Sellers, as to any other party.
There is no material default by Target or, to the best knowledge of the Sellers,
by any other party, under any of the Realty Leases, and, to the best knowledge
of the Sellers, there is no event which, with notice or the passage of time or
both, would constitute such material default by Target or, to the best knowledge
of the Sellers, by any other party under any of the Realty Leases. Except as set
forth on SCHEDULE 2.21(B) of the Sellers' Disclosure Schedule, upon consummation
of the transactions contemplated under this Agreement, Target will remain
entitled to the full economic, legal and other benefits under the Realty Leases
on their present terms, and no party has any right to cancel, terminate or
modify any of the Realty Leases by reason of the transactions contemplated under
this Agreement.
(c) CONDEMNATION. Except as set forth on SCHEDULE 2.21(C) of the
Sellers' Disclosure Schedule, there is no pending condemnation, expropriation,
eminent domain, or similar proceeding affecting all or a material portion of the
Real Property Interests and to the best knowledge of the Sellers, no such
proceeding is contemplated.
(d) DISCLOSURE. SCHEDULE 2.21(D) of the Sellers' Disclosure
Schedule contains a complete list of all deeds, leases, subleases, and other
instruments and documents in the
-12-
possession of Target or any Seller evidencing the ownership, leasing or right to
use of the Real Property Interests.
2.22 PERSONAL PROPERTY. Set forth on SCHEDULE 2.22 of the Sellers'
Disclosure Schedule hereto is a complete list and summary description of all
equipment, machinery, motor vehicles, furniture, trademarks, patents, and other
tangible and intangible personal property (the "PERSONAL PROPERTY") owned or
leased by Target, except for (a) any item of owned personal property with an
invoice cost of less than One Thousand Dollars ($1,000) and (b) supplies which
have a short-term useful life and are expensed, together with a statement as to
the location of each item of Personal Property identified therein. Except as set
forth in such SCHEDULE 2.22 of the Sellers' Disclosure Schedule, Target has good
and marketable title to all the owned Personal Property and good and valid
leasehold interests in all leased Personal Property, reflected in SCHEDULE 2.22
of the Sellers' Disclosure Schedule, free and clear of all Liens except for such
Liens which do not materially impair the value or use of the Personal Property.
2.23 INTELLECTUAL PROPERTY. Set forth on SCHEDULE 2.23 of the
Sellers' Disclosure Schedule hereto is a true and correct list of all material
patents and patent applications, and all registrations or applications of
trademarks, trade names, service marks, and copyrights that are used by, or held
by or on behalf of, Target other than intellectual property rights used pursuant
to software license agreements (collectively, together with all know-how and
trade secrets currently used by, or developed by the employees of, Target that
relate to the operations of Target other than intellectual property rights used
pursuant to software license agreements, the "INTELLECTUAL PROPERTY"). Target
owns (free and clear of all Liens other than Permitted Liens) or has the right
to use under a license, without payment to any other party (other than under a
license described on SCHEDULE 2.17 of the Sellers' Disclosure Schedule), the
Intellectual Property. Since January 1, 1998, (i) no claims have been made in
writing by any person challenging or questioning the right of Target to use the
Intellectual Property or the validity or scope thereof; (ii) no person has
claimed in writing the right to use any Intellectual Property owned or used
under license, other than any rights granted by a Target pursuant to a license
described on SCHEDULE 2.17 of the Sellers' Disclosure Schedule; and (iii) no
claims of patent, trademark, trade name, service xxxx, or copyright infringement
have been made in writing by any person with respect to the right of Target to
continue to sell any product or service or to conduct its operations without
payment of a royalty or license fee (other than payments that are currently
subject to a license described on SCHEDULE 2.17 of the Sellers' Disclosure
Schedule). No patent or trademark owned or used under license has been declared
unenforceable or otherwise invalid by any court or governmental authority. All
patent and trademark registrations or applications which constitute Intellectual
Property owned or used under license have been duly registered in, filed in, or
issued by, the U.S. Patent and Trademark Office, or other applicable foreign
patent and trademark office as listed on SCHEDULE 2.23 of the Sellers'
Disclosure Schedule, and have been properly maintained and renewed in accordance
with all applicable laws.
2.24 CONDITION AND SUFFICIENCY OF THE TARGET ASSETS. The Target
Assets have been properly maintained and are in good operating condition and
repair, subject only to ordinary wear and tear. The Target Assets are all of the
assets necessary for the conduct of the Business in substantially the same
manner as currently conducted. Prior to the Closing, the Sellers caused the
non-Business Target Assets listed on SCHEDULE 2.24 of the Sellers' Disclosure
Schedule, and the corresponding liabilities, if any, to be transferred in whole
to Sellers.
-13-
2.25 TRANSACTIONS WITH RELATED PARTIES. Except as disclosed on
SCHEDULE 2.25 of the Sellers' Disclosure Schedule, no Related Party:
(a) has borrowed money from, or loaned money to, Target which has
not been repaid;
(b) has guaranteed the performance of Target under any Contract,
Lease or other agreement or instrument which is still in effect or remains
outstanding or had its performance under any contract, lease, or other agreement
or instrument guaranteed by Target;
(c) has any contractual or other Claim, express or implied, of
any kind whatsoever against Target;
(d) had any interest in any Target Asset; or
(e) has been engaged in any other material transaction with
Target.
SCHEDULE 2.25 of the Sellers' Disclosure Schedule also lists all
Related Party balances (those between Target on the one hand and any Related
Party on the other) ("RELATED PARTY BALANCES") that were outstanding as of the
date of this Agreement.
2.26 EMPLOYEES; OFFICERS AND DIRECTORS. SCHEDULE 2.26 of the Sellers'
Disclosure Schedule sets forth the names, titles and current annual salary or
other compensation, including any bonus, if applicable, of all present officers,
directors and employees of Target with annual base compensation of Thirty
Thousand Dollars ($30,000) or more, together with a statement of the full amount
of all remuneration paid to each such person and to any director, during the
twelve-month period preceding the date hereof.
2.27 LABOR RELATIONS. Target is not and has never been a party to nor
are any of its employees otherwise subject to any collective bargaining
agreement. Currently and during the past three (3) years there neither are nor
have been any: (a) to the best knowledge of the Sellers, activities or
proceedings of any labor union or representatives thereof to organize any
employees of Target; (b) unfair labor practice complaints or grievances against
Target; or (c) labor strike, dispute, slowdown, work stoppage, picketing,
lockout or threat thereof against Target. Target has not received any unresolved
or outstanding notice of the intent of any federal, state or, local agency or
instrumentality having jurisdiction and responsibility for the enforcement of
labor or employment laws to conduct an investigation with respect to or relating
to Target, and no such investigation is in progress.
2.28 INSURANCE. Attached hereto as SCHEDULE 2.28 of the Sellers'
Disclosure Schedule is a complete and correct list of all policies of insurance
of which Target is the owner, insured, or beneficiary, or which covers Target or
any of the Target Assets, indicating for each policy the carrier, risks insured,
the amounts of coverage, deductible, premium rate, cash value if any, expiration
date, and any pending Claims thereunder, excluding routine medical insurance
Claims. All such policies are in full force and effect; there is no default with
respect to any provision contained in any such policy by Target or to the best
knowledge of the Sellers any other party thereto, or, to the best knowledge of
the Sellers, any event which, with notice or the passage of time or both would
constitute such a default, nor has there been any failure to give
-14-
any notice or present any Claim under any such policy in a timely fashion or in
the manner or detail required by the policy. There are no outstanding unpaid
premiums or Claims under such policies. SCHEDULE 2.28 of the Sellers' Disclosure
Schedule contains an accurate and complete description of any provision
contained in such policies which provides for retrospective or retroactive
premium adjustments. Except as described in Section 2.28 of the Sellers'
Disclosure Schedule, no notice of cancellation or non-renewal with respect to,
or disallowance of any Claim under, any such policy has been received; Target
has never been refused any insurance, nor has any coverage been limited by any
insurance carrier to which an application for insurance was made or with which
insurance was carried; and all general liability policies maintained by or for
the benefit of Target have been "occurrence" policies.
2.29 EMPLOYEE BENEFIT PLANS.
(a) SCHEDULE 2.29 of the Sellers' Disclosure Schedule sets forth
a complete and correct list of all employee benefit plans, as defined in Section
3(3) of ERISA, and all employment, compensation, bonus, stock option, stock
purchase, restricted stock, incentive, deferred compensation, retiree medical or
life insurance, split dollar insurance, supplemental retirement, severance,
change of control, loans or other benefit plans, programs, arrangements or
fringe benefits, in each case, which are provided, maintained, contributed to or
sponsored by Target on behalf of current or former directors, officers or
employees of Target, or for which Target has any liability, contingent or
otherwise (collectively, the "BENEFIT PLANS").
(b) Sellers have furnished Buyer with a complete and accurate
copy of (i) the plan document or other governing contract for each Benefit Plan,
as amended, and a summary of any unwritten Benefit Plans, (ii) the most recently
distributed summary plan description and summary of material modifications,
(iii) each trust or other funding agreement with respect to each Benefit Plan,
(iv) the most recently filed IRS Form 5500 (including schedules and attachments)
with respect to each Benefit Plan, (v) the most recently received IRS
determination letter and application therefor, and (vi) the most recently
prepared actuarial report and financial statements for each Benefit Plan.
(c) The Benefit Plans have been operated and administered in
accordance with their terms and the applicable requirements of ERISA, the Code
and any other applicable governing law. All contributions and all payments and
premiums required to have been made to or under any Benefit Plan have been
timely and properly made (or otherwise properly accrued if not yet due), and
nothing has occurred with respect to the operation of the Benefit Plans that
would cause the imposition of any liability, penalty or tax under ERISA, the
Code or governing law (including, without limitation, applicable foreign laws).
(d) No Benefit Plan is subject to Title IV of ERISA, or a
multiemployer plan within the meaning of Section 3(37)(A) of ERISA. Neither
Target nor any trade or business (whether or not incorporated) which is or has
ever been treated as a single employer with Target under Section 414(b), (c),
(m) or (o) of the Code ("ERISA AFFILIATES"), has incurred any liability under
title IV of ERISA or Section 412 of the Code, except for such liability that has
been paid in full.
-15-
(e) For each Benefit Plan that is a defined benefit pension plan
within the meaning of Statement of Financial Accounting Standard No. 87 ("SFAS
87"), and including, without limitation, any such Foreign Benefit Plan), the
"projected benefit obligation" of each such plan does not exceed the market
value of its "plan assets" as of December 31, 2002, as such terms are defined in
SFAS 87.
(f) There are no pending or, to best knowledge of the Sellers,
threatened suits, audits, examinations, actions, litigation or claims (excluding
claims for benefits incurred in the ordinary course) with respect to any of the
Benefit Plans.
(g) Each of the Benefit Plans which is intended to be "qualified"
within the meaning of Section 401 of the Code has received a favorable
determination letter from the IRS and no event has occurred and no condition
exists which would result in the revocation of any such determination letter or
otherwise result in the loss of its qualified status. Any voluntary employee
benefit association which provides benefits to current or former employees of
Target, or their beneficiaries, is and has been qualified under Section
501(c)(9) of the Code.
(h) 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 current or former employee or director of Target,
(ii) increase any benefits under any Benefit Plan, or (iii) result in the
acceleration of the time of payment, vesting or other rights with respect to any
such benefits.
(i) Target does not maintain or have an obligation to contribute
to, or provide coverage under, any retiree life or retiree health plans or
arrangements which provide for continuing benefits or coverage for current or
former officers, directors or employees of Target, except (i) as may be required
under part 6 of Title I of ERISA and at the sole expense of the participant or
the participant's beneficiary, or (ii) pursuant to a medical expense
reimbursement account described in Section 125 of the Code.
(j) None of the assets of any Benefit Plan is stock of Target or
any of their affiliates, or property leased to or jointly owned by Target or any
of its affiliates.
2.30 CUSTOMERS. SCHEDULE 2.30 of the Sellers' Disclosure Schedule
sets forth a true and complete list of Target's top ten (10) customer sources
during the past twelve (12) months measured by number of customers whose
purchases exceeded five percent (5%) of the aggregate net sales of Target during
each of the last three full fiscal years.
2.31 ACCOUNTS; LOCKBOXES AND SAFE DEPOSIT BOXES. SCHEDULE 2.31 of the
Sellers' Disclosure Schedule sets forth a list of: (a) the names of each bank,
savings and loan association, securities, or commodities or other financial
institution in which Target has an account, (b) the location of all lockboxes
and safe deposit boxes of each, and (c) the names of all Persons holding powers
of attorney, including signature authority for each such account indicated in
subparagraph (a) hereof or having access to each such lockbox or safe deposit
box indicated in subparagraph (b) hereof.
2.32 LICENSES. Target and each of its employees or agents providing
services at the pharmacy, as applicable, (i) hold all licenses, permits,
agreements and registrations ("PERMITS")
-16-
required for the operation of the Business, including, without limitation, all
Permits required by federal, state and local law and all applicable regulatory
agencies, and (ii) are in material compliance with all applicable laws,
regulations and agreements, except in the case of each of (i) and (ii), to the
extent there would not be a Material Adverse Effect on Target. All such Permits
are in full force and effect and Seller is not in material default in any
respect with respect to any such Permit. No notice from any authority with
respect to the revocation, termination, suspension or limitation of any such
Permit has been issued or given, nor is Seller aware of the proposed or
threatened issuance of any such notice.
2.33 PAYMENT PROGRAMS. Except as set forth on SCHEDULE 2.33 of the
Sellers' Disclosure Schedule (a) neither Seller, Target nor any of its employees
or agents have received notice that it is subject to any restriction or
limitation on the receipt of payment under the Medicare or Medicaid programs,
any other federally funded health care program or any other third party payor
(collectively, the "PAYMENT PROGRAMS"), (b) Target has valid and current
provider agreements with the Payment Programs, and (c) Target is in compliance
with the conditions of participation for the Payment Programs. Neither Sellers
nor Target have received written notice that a Payment Program has requested or
threatened any material recoupment, refund, or set-off from Target, or imposed
any material fine, penalty or other sanction on Target nor has Target been
excluded from participation in a Payment Program. Target has not submitted to a
Payment Program any material false or fraudulent claim for payment, nor has
Target at any time violated any material condition for participation, or any
published rule, regulation, policy or standard of a Payment Program.
2.34 FRAUD AND ABUSE. In connection with the Business, Target has not
engaged in any activities that are prohibited under Federal Medicare and
Medicaid statutes, 42 U.S.C. xx.xx. 1320a-7, 1320a-7a, 1320a-7b or the Federal
False Claims Act, 31 U.S.C. ss. 3729 et seq., the regulations promulgated
pursuant to such statutes, or any related state or local statutes or
regulations.
2.35 PHYSICIAN SELF-REFERRALS. Target's operations relating to the
Business are in compliance with and do not otherwise violate the Federal
Medicare and Medicaid statutes regarding physician self-referrals, 42 U.S.C.
xx.xx. 1395nn and 1396b(s), the regulations promulgated pursuant to such
statutes, or any related state or local statutes or regulations.
2.36 CONTROLLED SUBSTANCES. Target has not engaged in any activities
in connection with the Business which are prohibited under the Federal
Controlled Substances Act, 21 U.S.C. ss. 801 et seq., or the regulations
promulgated pursuant to such statute or any related state or local statutes or
regulations concerning the dispensing and sale of controlled substances.
2.37 DISCLOSURE. To the best knowledge of the Sellers, no
representation or warranty in this Agreement, and no exhibit, document,
statement, certificate, or schedule furnished or to be furnished to Buyer
pursuant hereto, or in connection with the transactions contemplated hereby,
contains any untrue statement of a material fact, or omits to state a material
fact necessary to make the statements or facts contained herein or therein not
misleading, or necessary to provide a reasonable Person with adequate and
complete information as to Target, the Target Assets, the Business, and the
Shares.
-17-
ARTICLE 3
REPRESENTATION AND WARRANTIES OF BUYER AND PARENT
Buyer and Parent hereby jointly and severally represent and warrant
to Sellers, as of the date hereof and as of the Closing Date, as follows:
3.1 ORGANIZATION; QUALIFICATION; AUTHORITY AND ENFORCEABILITY. Each
of Buyer and Parent is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of California, in the case of Buyer,
and the State of Delaware, in the case of Parent, and has all requisite
corporate power and authority (a) to do business in the jurisdictions wherein
the character of the properties owned or leased or the nature of the activities
by it make such qualification necessary, (b) to execute and deliver each
Transaction Agreement to which it is a party, and (c) to perform its obligations
hereunder, including the payment of the Purchase Price and the issuance of the
Warrants and the Notes. Each of Buyer's and Parent's execution and delivery of
each Transaction Agreement to which it is a party, and the performance of its
obligations thereunder, have been duly authorized by all necessary corporate
action on the part of Buyer and Parent. No approval of the stockholders of
Parent is required in connection with Parent's execution and delivery of the
Transaction Agreements to which it is a party, and the performance of its
obligations thereunder. Each Transaction Agreement to which either Buyer of
Parent is a party has been duly executed and delivered by Buyer and Parent,
respectively, and constitutes the legal, valid and binding obligation of Buyer
and Parent, respectively, enforceable against Buyer and Parent, respectively, in
accordance with its terms subject to general equitable principles and except as
the enforceability thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws of general application relating
to creditors' rights.
3.2 NO CONFLICT; NO VIOLATION OF LAWS OR AGREEMENTS. The execution
and delivery of the Transaction Agreements to which either Buyer or Parent is a
party do not and the consummation of the transactions contemplated thereunder
and the compliance with the terms, conditions and provisions of such Transaction
Agreements by Buyer and Parent will not: (a) contravene any provision of Buyer's
or Parent's respective Charter or Bylaws, or (b) conflict with, or constitute,
or result in any breach, default, violation of (or an event which would, with or
without the passage of time or the giving of notice or both constitute or result
in a breach, default or violation of) (i) any of the terms, conditions, or
provisions of any indenture, mortgage, loan, credit agreement, or any other
instrument, contract, agreement or commitment to which Buyer or Parent is a
party, or by which any of their assets may be bound or affected or (ii) any
judgment or order of any Governmental Authority applicable to either Buyer or
Parent, or (iii) any law, rule, or regulation applicable to Buyer, Parent any of
their Affiliates; except, in the case of (i) above, to the extent any such
breach, default or violation would not result in a Material Adverse Effect on
Buyer or Parent.
3.3 CONSENTS. No consent, approval, or authorization of, or
registration or filing with, any Person, including any Governmental Authority,
is required in connection with Buyer's or Parent's execution and delivery of the
Transaction Agreements to which they are a party or the consummation of the
transactions contemplated thereunder by Buyer and Parent.
-18-
3.4 LITIGATION AND CLAIMS. There are no Claims pending or, to the
best knowledge of Buyer or Parent, threatened which seek to delay or prevent the
consummation of the transactions contemplated by the Transaction Agreements or
which would be reasonably likely to adversely affect or restrict Buyer's or
Parent's ability to perform their obligations under the Transaction Agreements
to which they are a party.
3.5 SEC REPORTS, ETC.
(a) The forms, reports and documents filed by Parent with the SEC
since March 31, 2002 (including all exhibits, notes, and schedules thereto and
documents incorporated by reference therein) (collectively, the "PARENT SEC
REPORTS") did not at the time filed or at the time of their respective effective
dates, as the case may be (or if amended or superseded by a filing prior to the
date of this Agreement, then on the date of such filing), contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements in such Parent SEC Reports, in the light of the
circumstances under which they were made, not misleading.
(b) Except as disclosed in the Parent SEC Reports, Buyer does not
have any liabilities, either accrued or contingent (whether or not required to
be reflected in financial statements in accordance with generally accepted
accounting principles), and whether due or to become due, which individually or
in the aggregate, would reasonably be expected to have a Material Adverse Effect
on Buyer or Parent.
3.6 INVESTMENT INTENT. Buyer is acquiring the Shares solely for its
own account and not with a view to a sale or distribution thereof in violation
of any securities laws. Buyer acknowledges that it has received, or has had
access to, all information which it considers necessary or advisable to enable
it to make a decision concerning its purchase of the Shares, provided that the
foregoing shall not limit or otherwise affect the rights or remedies of Buyer
hereunder with respect to the breach of any representations, warranties,
covenants or agreements of Seller contained herein. Parent is an "accredited
investor," as that term is defined in Regulation D of the Securities Act, and
recognizes that the Shares being acquired must be held indefinitely unless they
are registered under the Securities Act or an exemption from such registration
is available.
3.7 BROKERS. Neither Buyer nor Parent nor anyone acting on their
behalf has engaged, retained or incurred any liability to any broker, investment
banker, finder or agent, made any agreement or taken any other action which
would cause Target, Buyer, Parent or any Affiliates of Buyer or Parent to be
obligated to pay any brokers fee, commission or other fees with respect to the
purchase of the Shares or as a result of the transactions contemplated by this
Agreement.
ARTICLE 4
CERTAIN OBLIGATIONS
4.1 CONDUCT OF BUSINESS PENDING CLOSING. From and after the date
hereof and until the Closing (the "Pre-Closing Period"), and unless otherwise
provided herein or Buyer otherwise consents or agrees in writing, the Sellers
covenant and agree that they will not permit Target to:
-19-
(a) amend its Charter or Bylaws;
(b) change its authorized or issued capital stock, or issue any
rights or options to acquire such stock;
(c) enter into any contract or commitment the performance of
which may extend beyond the Closing, except those made in the ordinary course of
business;
(d) enter into any employment or consulting contract or
arrangement with any Person which is not terminable at will, without penalty or
continuing obligation;
(e) incur, create, assume or suffer to exist any Lien affecting
any of the Target Assets except Permitted Liens;
(f) make, change, or revoke any tax election or make any
agreement or settlement with any taxing authority;
(g) incur any debt or other obligation for money borrowed except
in the ordinary course of business;
(h) loan, advance funds, or make an investment in or capital
contribution to any Person;
(i) take any action or permit to occur any event described in
subparagraphs (c) through (q) of Section 2.13, unless otherwise expressly
permitted in this Agreement;
(j) sell, transfer, lease or otherwise dispose of any long term
Target Asset;
(k) take any action or omit to take any action which will result
in a material violation of any applicable law or cause a material breach of any
agreements, contracts, or commitments not considered ordinary course; or
(l) enter into any agreement to do any of the foregoing.
4.2 ORDINARY COURSE. During the Pre-Closing Period, the Business will
be conducted only in the ordinary course, including billing, collection
practices and payment of accounts payable.
4.3 PRESERVATION OF BUSINESSES. During the Pre-Closing Period, the
Sellers will use reasonable best efforts to preserve the business organization
of Target and to preserve for Buyer the goodwill of the suppliers, customers and
others having business relations with Target.
4.4 MAINTENANCE OF EMPLOYEES. During the Pre-Closing Period, the
Sellers will use their reasonable best efforts to retain all existing employees
of Target and will promptly notify Buyer (a) of the termination of employment of
any existing employee who has a base annual compensation of Thirty Thousand
Dollars ($30,000) or more, (b) of the receipt by Target of notice of termination
of employment of any existing employee and (c) if Target or either Seller
believes that any existing employee intends to terminate his or her employment.
-20-
4.5 INSURANCE. During the Pre-Closing Period, the insurance policies
set out on SCHEDULE 2.28 of the Sellers' Disclosure Schedule will be maintained
in full force and effect, subject only to variations required by ordinary course
business operations. Buyer shall be advised in writing of any change of insurer
or type of coverage from the policies listed on SCHEDULE 2.28 of the Sellers'
Disclosure Schedule.
4.6 COOPERATION. After the Closing hereunder, each party shall
cooperate and take such actions as may be reasonably requested by the other
party to obtain, amend or substitute any (i) permits, authorizations, licenses,
bonds or surety deposits granted by or filed with any Governmental Authorities,
(ii) consents or approvals by any third Person (other than Governmental
Authorities) by reason of the transactions contemplated hereby (the "PERMITS AND
CONSENTS"). If any Permits and Consents must be obtained prior to Closing in
order to assure the continued and uninterrupted operation of the Business after
the Closing as heretofore conducted or the consummation of the transactions
contemplated hereby (the "REQUIRED PERMITS AND CONSENTS"), all expenses in
connection with obtaining such Required Permits and Consents will be borne by
the Target.
4.7 ACCESS, INFORMATION, AND DOCUMENTS. During the Pre-Closing
Period, Buyer, Parent and their counsel, accountants, and other representatives
will have full access during normal business hours to all of Target's
properties, books, tax returns, contracts, commitments, records, officers,
personnel, and accountants. During the Pre-Closing Period, the Sellers shall
provide Buyer and Parent with all such documents and copies of documents
(certified to be true copies if requested) and all information with respect to
the affairs of Target as they may reasonably request. No investigation or
receipt of information by Buyer or Parent pursuant to this Agreement shall
diminish or obviate any of the representations, warranties, covenants or
agreements of the Sellers under this Agreement or the conditions to the
obligations of Buyer and Parent under this Agreement.
4.8 ACQUISITION PROPOSALS. From the date hereof through the Closing,
none of the Sellers, or any of their Affiliates, nor any of their respective
officers, directors, employees, representatives or agents, shall, directly or
indirectly, solicit, initiate, or participate in any way in discussions or
negotiations with, or provide any information or assistance to, any Person or
group of Persons (other than Buyer and Parent) concerning any acquisition of an
equity interest in, or any merger or consolidation with or into, or any
acquisition of any portion of the assets of, Target (each, an "ACQUISITION
PROPOSAL"), or assist or participate in, facilitate, or encourage any effort or
attempt by any other Person to do or seek to do any of the foregoing. The
Sellers shall promptly communicate to Buyer the terms of any Acquisition
Proposal which any of them or any such other Person may receive.
4.9 CONTROLLED SUBSTANCES REGISTRATION. Within ten (10) business days
following the date hereof, Buyer shall file or supply, or cause to be filed or
supplied, all necessary applications and information required for Buyer's
Controlled Substances Registration Certificate with the Drug Enforcement
Administration.
4.10 GUARANTIES. Sellers shall cause Target to be released from any
and all guaranties made by Target to Buyer's satisfaction.
-21-
4.11 RELATED PARTY BALANCES. Sellers shall cause Target to settle all
Related Party Balances prior to Closing to Buyer's satisfaction.
4.12 LEASE EXTENSION. Sellers shall cause the term of the
Nonresidential Lease Agreement, dated December 15, 2001, by and between Xxxxx
and Target for the premises located at 0000 X. 000 Xxxxxx, Xxxxxxxx, Xxxxxxxxxx
to be replaced with a new lease agreement in the form attached hereto as EXHIBIT
K on its current terms until December 31, 2005.
4.13 D&O INSURANCE. Parent shall obtain and retain for six (6) years
after the Closing Date, on the same terms as Parent maintains for itself and its
other subsidiaries, a claims-made directors and officers insurance policy
covering each of the Sellers in their capacities as officers and directors of
Target prior to Closing.
4.14 PATENT APPLICATION ASSIGNMENT. Xxxxx shall assign patent
application No. 10/208,161 for Medicine Dispensing Apparatus, filed on July 29,
2002 to Target.
4.15 MANAGEMENT REPRESENTATION LETTERS. The Sellers will execute
Management Representation Letters reasonably requested by Parent's outside
auditors in connection with the audit of Target.
ARTICLE 5
CONDITIONS TO CLOSING
5.1 CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER AND PARENT. The
obligations of Buyer and Parent to proceed with the Closing under this Agreement
are subject to the fulfillment prior to or at Closing of each of the following
conditions (any one or more of which may be waived in whole or in part by Buyer
and Parent in Buyer's and Parent's sole discretion):
(a) MATERIAL ADVERSE EFFECT. There shall not be a breach of, or
any inaccuracy contained in, the representations and warranties or covenants of
the Sellers contained in this Agreement (including the Schedules hereto) on or
prior to the Closing Date, which, alone or together with other such breaches or
inaccuracies, has resulted or is reasonably likely to result in a Material
Adverse Effect.
(b) DUE DILIGENCE. Parent shall be satisfied, in its sole and
absolute discretion, with its business, financial, operational and legal due
diligence review of Target.
(c) PERFORMANCE AND COMPLIANCE. The Sellers shall have performed
all of the covenants, and complied with all of the provisions required by this
Agreement to be performed or complied with by them on or before the Closing,
including the deliveries required to be made pursuant to Section 6.1 of this
Agreement.
(d) EMPLOYMENT AGREEMENTS. Target shall have entered into
Employment Agreements, substantially in the form attached hereto as EXHIBIT E,
with each of Xxxxx and Xxxxx Xxxxxxx.
-22-
(e) CONSULTING AGREEMENT. Target shall have entered into a
Consulting Agreement, substantially in the form attached hereto as EXHIBIT F
with Xxxxx.
(f) BOOKS AND RECORDS. All Books and Records of Target shall have
been delivered to Buyer as directed by Buyer.
(g) SATISFACTORY INSTRUMENTS. All instruments and documents
required of the Sellers to effectuate and consummate the transactions
contemplated hereby shall be in form and substance reasonably satisfactory to
Buyer and its counsel.
(h) REQUIRED PERMITS AND CONSENTS. All Required Permits and
Consents, if any, to be obtained by the Sellers pursuant to Section 4.6 prior to
the consummation of the transactions contemplated by this Agreement shall have
been obtained.
(i) LITIGATION. No order of any Governmental Authority shall be
in effect which restrains or prohibits the transactions contemplated by this
Agreement. There shall not be threatened, nor shall there be pending, any action
or proceeding (i) challenging any of the transactions contemplated by this
Agreement or seeking monetary relief by reason of the consummation of such
transactions, or (ii) which would likely have a Material Adverse Effect.
(j) INDEBTEDNESS PAYOFF LETTERS. Buyer shall have received the
Indebtedness Payoff Letter, and upon payment of the amounts specified therein in
accordance with Section 1.5(a), Target shall have no obligation for any
indebtedness to any financial institution and Buyer shall have received evidence
reasonably satisfactory to it that Target and the Target Assets have been
released from any and all obligations and Liens relating to such indebtedness.
(k) REMEDIAL ACTION PLAN. The Sellers shall have provided to
Xxxxxxx Corporation by May 1, 2003 the Remedial Action Plan referred to in the
Xxxxxxx Letter and shall have provided Parent with a copy of such plan.
(l) GAAP BALANCE SHEET. The Sellers shall have provided to Buyer
an unaudited balance sheet of Target as of April 30, 2003 prepared in accordance
with GAAP, on a basis consistent with the balance sheet of Target provided to
Parent on or about April 16, 2003, a copy of which is attached hereto as EXHIBIT
L, and which shall reflect a Net Worth not less than $2,000 lower than the Net
Worth reflected in the balance sheet delivered on or about April 16, 2003.
5.2 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE SELLERS. The
obligation of the Sellers to proceed with the Closing is subject to the
fulfillment prior to or at Closing of each of the following conditions (any one
or more of which may be waived in whole or in part by the Sellers in their sole
discretion):
(a) REPRESENTATIONS AND WARRANTIES. All representations and
warranties of Buyer and Parent contained herein shall be true, accurate,
complete and correct in all material respects as of the Closing Date.
-23-
(b) PERFORMANCE AND COMPLIANCE. Buyer and Parent shall have
performed all of the covenants and complied with all the provisions required by
this Agreement to be performed or complied with by Buyer or Parent on or before
the Closing.
(c) LITIGATION. No order of any Governmental Authority shall be
in effect which restrains or prohibits the transactions contemplated hereby, and
there shall not have been threatened, nor shall there be pending, any action or
proceeding challenging any of the transactions contemplated by this Agreement or
seeking monetary relief by reason of the consummation of such transactions.
(d) SATISFACTORY INSTRUMENTS. All instruments and documents
required of Buyer or Parent to effectuate and consummate the transactions
contemplated hereby shall be in form and substance reasonably satisfactory to
Seller and its counsel.
(e) REQUIRED PERMITS AND CONSENTS. All Required Permits and
Consents, if any, to be obtained by Buyer pursuant to Section 4.6 prior to the
consummation of the transactions contemplated hereby shall have been obtained.
(f) SATISFACTION OF CLOSING CONDITIONS. Upon the occurrence of
the Closing, unless otherwise specified in writing, all closing conditions set
forth in Sections 5.1 and 5.2 shall be deemed satisfied and irrevocably waived.
ARTICLE 6
DELIVERIES AND PROCEEDINGS AT CLOSING
6.1 CLOSING DELIVERIES BY SELLER. Subject to the terms and conditions
of this Agreement, at the Closing, Sellers shall deliver or cause to be
delivered to Buyer and Parent the following documents, all in form and content
reasonably satisfactory to Buyer and Parent:
(a) CORPORATE DOCUMENTS.
(i) Certificates of corporate good standing or legal
existence of Target as of a recent date;
(ii) The duly executed resignation, effective as of the
Closing, of each of the officers and directors and of each of the trustees, plan
administrators and fiduciaries of Target other than such parties whose names are
listed on SCHEDULE 6.1(A)(II) of the Sellers' Disclosure Schedule;
(iii) Evidence reasonably acceptable to Buyer that the
authority of the persons holding powers of attorney or having signature
authority or access to lockboxes or safe deposit boxes as indicated on SCHEDULE
2.31 of the Sellers' Disclosure Schedule has been terminated.
(iv) Certifications by the Chief Financial Officer and the
Chief Executive Officer of Target as to the accuracy of the Financial Statements
in the form attached hereto as Exhibit G; and
-24-
(v) A legal opinion of Xxxxxx Godward LLP in the form of
Exhibit H.
(b) TRANSFER OF SHARES.
(i) Stock certificates evidencing the Shares accompanied by
stock powers duly executed in blank and any other documents that are necessary
to transfer to Buyer good title to the Shares, free and clear of all Liens; and
(ii) One or more certificates of the non-foreign status of
Seller required to be delivered under Treas. Reg. Section 1.1445-2 in order to
relieve Buyer of the requirements to withhold United States Taxes under Section
1445 of the Code.
(c) RELATED AGREEMENTS.
(i) The Employment Agreements described in Section 5.1(d);
(ii) The Security Agreement;
(iii) A General Release;
(iv) All Required Permits and Consents;
(v) An appropriate power of attorney in connection with Buyers'
application for a temporary permit and subsequent permanent license to own and
operate the Business from the California Board of Pharmacy, in form and
substance satisfactory to Buyer; and
(vi) Removal of guarantees, if any.
6.2 DELIVERIES BY BUYER AND PARENT. Subject to the terms and
conditions of this Agreement, at the Closing, Buyer and Parent shall deliver or
cause to be delivered to Sellers the following all in form and content
reasonably satisfactory to Sellers:
(a) CORPORATE DOCUMENTS.
(i) Officer's Certificates of Buyer and Parent certifying as
to (A) the incumbency and genuineness of the signatures of the respective
officers of Buyer or Parent executing this Agreement or any other Purchase
Document, (B) the truth and correctness of the respective corporate resolutions
authorizing the entry by Buyer or Parent into this Agreement and the
transactions contemplated hereby and (C) the truth, correctness and completeness
of the respective Charter and Bylaws of Buyer and Parent;
(ii) Certificates of corporate good standing or legal
existence of Buyer and Parent as of a recent date; and
(iii) A legal opinion of XxXxxxxxx, Will & Xxxxx in the form
of Exhibit I.
-25-
(b) PURCHASE PRICE PAYMENT.
(i) Two Million Two Hundred Fifty Thousand Dollars
($2,250,000) by wire transfer of immediately available funds; and
(ii) Two Million Four Hundred Thousand Dollars ($2,400,000)
by delivery of the Notes and the Security Agreement.
(c) RELATED AGREEMENTS.
(i) The Warrants;
(ii) A General Release.
ARTICLE 7
TERMINATION
[RESERVED]
ARTICLE 8
CERTAIN ADDITIONAL COVENANTS
8.1 COSTS AND EXPENSES. Each party hereto will pay its own costs and
expenses, including legal and accounting fees, in connection with the
negotiation, execution, performance of and compliance with this Agreement,
except that Target shall pay all of such costs and expenses of the Sellers
before the Closing Date.
8.2 NO SOLICITATION. For a period of three (3) years from and after
the Closing Date, none of Xxxxx, Xxxxx and their respective Affiliates, nor any
Person controlled, directly or indirectly, by any of them, may, directly or
indirectly, alone or in association with any other Person, whether as owner,
partner, shareholder, member, consultant, agent, employee, co-venturer or
otherwise, (i) employ, attempt to employ, recruit or otherwise solicit, induce
or influence any person who is then currently employed or retained by Buyer or
any of its Affiliates to leave such employment or otherwise terminate its
relationship with Buyer or any of its Affiliates or otherwise interfere with any
such person's employment or relationship with Buyer or any of its Affiliates;
PROVIDED, HOWEVER, that the foregoing shall not prohibit the Sellers and their
Affiliates from employing any individuals who have received notice of
termination from, or who ceased to be employed by, Buyer or its Affiliates prior
to the first time such individuals discussed with any representative of the
Sellers or their Affiliates employment by Sellers or any of their Affiliates; or
(ii) solicit, encourage, induce, directly or indirectly, any Person, customer or
supplier to terminate or otherwise modify adversely its business relationship
with Buyer or any of its Affiliates.
8.3 NON-COMPETITION. For a period of three (3) years after the
Closing Date, neither Seller and no Person controlled, directly or indirectly,
by any such Seller may, directly or indirectly, alone or in association with any
other Person, whether as owner, partner, shareholder,
-26-
member, consultant, agent, employee, co-venturer or otherwise, engage,
participate or assist in any business competitive with the retail HIV/AIDS
pharmacy business conducted by Buyer or any of its Affiliates in California in
the following counties: (1) Los Angeles, (2) San Diego, (3) Orange, (4) Santa
Xxxxxxx, (5) Ventura, (6) San Bernardino, (7) Riverdale, (8) Imperial, (9) San
Francisco, (10) Xxxx and (11) San Louis Obispo or in any other State in the
United States other than California (a "COMPETITIVE BUSINESS"), or carry on, or
be engaged or concerned in, solicit on behalf of, take part in or render
consulting services to, or own, share in the earnings of, or invest in the
stock, bonds or other securities of, any Person engaged in Competitive Business;
PROVIDED, HOWEVER, that ownership of five percent (5%) or less of any
outstanding stock of a publicly held corporation shall not be a violation of the
provisions of this Section 8.3.
8.4 CONFIDENTIAL INFORMATION; CONFIDENTIALITY. As used in this
Agreement, "CONFIDENTIAL INFORMATION" means information belonging to the Target
or Parent that is of value to Target or Parent in the course of conducting their
business and the disclosure of which would reasonably be expected to result in a
competitive disadvantage to Target or Parent. By way of example and not in
derogation of the foregoing definition, Confidential Information includes,
without limitation, (A) financial information, reports and forecasts;
inventions, improvements and other intellectual property; trade secrets;
know-how; designs, processes and formulae; software-marketing and sales
information and plans, customer and supplier lists; and business plans,
prospects and opportunities (such as possible acquisitions or dispositions of
businesses or facilities) that have been discussed or considered by Target or
Parent; (B) information developed by the Sellers in connection with or related
to the Target or the Business, as well as other information to which the Sellers
may have access in connection with or related to the Target or the Business; and
(C) the lawfully acquired confidential information of others with which the
Target has a business relationship. Notwithstanding the foregoing, Confidential
Information does not include information in the public domain, unless due to a
breach of the Sellers' obligations under this Section 8.4.
Each Seller will keep in confidence and trust all Confidential
Information, and will not use or disclose any Confidential Information without
the written consent of the Parent and Buyer, except as required by law or legal
process. If a Seller is required by law or legal process to disclose any
Confidential Information, such Seller shall not be in breach of this Section 8.4
if such Seller provides Buyer with prompt notice thereof so that Buyer may seek
a protective order or other appropriate remedy to prevent or limit disclosure of
any Confidential Information. Each Seller shall cooperate, to the extent
practicable and without material cost or expense to the Seller, with Buyer's
application for a protective order or remedy, and, in any event, shall disclose
only that portion of the Confidential Information that such Seller is legally
required to disclose.
8.5 ADJUSTMENTS TO PURCHASE PRICE. Amounts payable in respect of the
indemnification obligations under Sections 9.2 and 9.3 hereof shall be treated
by the Sellers, Buyer and Parent as adjustments to the Purchase Price.
8.6 SECTION 338 ELECTION. Neither Buyer nor Target will make an
election under Section 338 of the Code with respect to the transactions
contemplated by this Agreement.
-27-
ARTICLE 9
INDEMNIFICATION
9.1 SURVIVAL.
(a) GENERAL. Except as set forth in subsection (b) below, the
representations and warranties of the Sellers and Buyer and Parent contained
herein shall survive the Closing and remain in full force and effect, for two
(2) years after the Closing Date except as otherwise provided in this Section
9.1. The covenants and agreements of the Sellers and the Buyer and Parent shall
survive (i) until fully performed or fulfilled, unless non-compliance with such
covenants, agreements or obligations is waived in writing by the party or
parties entitled to such performance or (ii) if not fully performed or
fulfilled, until the expiration of the relevant statute of limitations. The
representations and warranties of Buyer and the Parent and of the Sellers,
respectively, shall not be affected by any investigation, disclosure,
verification, inspection or examination by any party hereto or by anyone on
behalf of any such party, except as specifically set forth in an exhibit or
document delivered pursuant to this Agreement.
(b) TITLE TO SHARES. The representations and warranties set forth
in and Section 2.2 entitled "Title to Shares" shall survive the Closing without
any time limitation.
9.2 INDEMNIFICATION BY THE SELLERS. Each Seller shall Pro Rata
jointly and severally indemnify, defend and hold harmless Buyer, Parent, their
respective officers, directors, employees, consultants, owners, agents and
Affiliates (including Target), regardless of any investigation made by Buyer or
Parent or on their behalf, for, against, from and in respect of any and all
losses, damages, costs and expenses of any kind and nature whatsoever (including
interest and penalties, reasonable expenses of investigation and court costs,
reasonable attorneys' fees and disbursements and the reasonable fees and
disbursements of other professionals incurred in the investigation or defense of
any of the same or in asserting any of their respective rights hereunder)
(collectively, "LOSSES") which are sustained or suffered by any of them arising
out of, resulting from or pertaining to:
(a) any breach of, or inaccuracy contained in, any representation
or warranty made by the Sellers in this Agreement or in any certificate
delivered by the Sellers pursuant to this Agreement;
(b) any failure of the Sellers to perform any covenant or
agreement to be performed after the Closing Date hereunder or fulfill any other
obligation in respect hereof; and
(c) the Excess Settlement Amount.
9.3 INDEMNIFICATION BY BUYER AND PARENT. Buyer and Parent shall
jointly and severally indemnify, defend and hold harmless the Sellers, for,
against, from and in respect of any and all Losses which may be sustained or
suffered by either of them arising out of, resulting from or pertaining to:
-28-
(a) any breach of, or any inaccuracy contained in, any
representation or warranty made by Buyer and Parent in this Agreement or in any
certificate delivered by Buyer or Parent pursuant to this Agreement;
(b) any failure of Buyer to perform any covenant or agreement to
be performed after the Closing Date hereunder or fulfill any other obligation in
respect hereof; or
(c) any payment or other obligation of Xxxxx X. Xxxxxxxx related
to the 2003 Toyota Corolla (VIN #XXXXX00X000000000).
9.4 MATERIALITY. Notwithstanding that certain representations or
covenants set forth in this Agreement are qualified to the effect that they are
not breached unless the breach is "material" or affects the Buyer or Parent or
the Seller in a "material respect" (a "materiality qualifier"), either party
shall be entitled to indemnification pursuant to Section 9.2 or 9.3, as the case
may be, with respect to any single occurrence of fact or related set of facts
which, regardless of any materiality qualifier, would be a breach of a
representation or covenant.
9.5 LIMITATIONS.
(a) MAXIMUM LIABILITY. The aggregate obligation of the Sellers to
indemnify any Indemnified Party for any Losses under this Article 9 shall not
exceed an amount equal to the principal and interest outstanding under the
Notes. Notwithstanding the foregoing, the aggregate obligation of the Sellers to
indemnify any Indemnified Party for Losses under this Article 9 for any matter
other than any breach of or inaccuracy contained in, any representation or
warranty made by the Seller and set forth in Section 2.2 entitled "Title to
Shares," shall not exceed an amount equal to the amount of principal and
interest outstanding under the Notes on the date such Indemnified Party provides
the Sellers with written notice of any such claim, it being understood that each
Seller's obligation for such claims under this Article 9 shall not exceed an
amount equal to the principal and interest outstanding under such Seller's
allocable portion of the Notes and that, except for a right of set-off against
the principal and interest under the Notes, no Indemnified Party shall have any
recourse under this Article 9 to the payment paid to the Sellers under Section
1.5(a) or to any other personal property, rights or assets of Sellers.
(b) MINIMUM CLAIM AMOUNT. No Claim may be made for
indemnification of any Losses by any Indemnified Party unless such Claim for
Losses individually exceeds Twenty Thousand Dollars ($20,000); PROVIDED,
HOWEVER, that in the case of any Claim for Losses attributable to (i) Taxes, the
amount of such Claim shall be determined by reference to the aggregate Losses
attributable to any particular Return and not to any particular item of such
Return, or (ii) any breach or inaccuracy contained in any representation or
warranty made by the Sellers and set forth in Sections 2.33, 2.32 or 2.34
entitled "Payment Programs" and "Fraud and Abuse" (a "PAYMENT PROGRAM/FRAUD AND
ABUSE CLAIM"), the amount of such Claim shall be determined by reference to the
aggregate losses attributable to any number of such recoupments, referrals,
set-offs, fines, penalties or other monetary sanctions; and provided, further,
that the foregoing minimum claim amount shall not apply to any Claim for the
Excess Settlement Amount.
-29-
(c) TRIGGER AMOUNT. No Indemnifying Party shall be liable to any
Indemnified Party for indemnification of any Losses under this Article 9 until
the aggregate amount of all indemnifiable Losses of such Indemnified Party
exceeds One Hundred Twenty-Five Thousand Dollars ($125,000) (the "TRIGGER
AMOUNT"); in which event the Indemnifying Party's indemnification obligation
shall apply to the aggregate amount of all claims with respect to which the
Indemnified Party is entitled to indemnification hereunder (including any claims
which individually or in the aggregate did not reach the Trigger Amount);
PROVIDED, HOWEVER, that such Trigger Amount shall not apply in the case of any
Claim for Losses attributable to (i) Taxes, (ii) any Payment Program Claim or
(iii) any Claim for the Excess Settlement Amount.
9.6 NOTICE AND OPPORTUNITY TO DEFEND. Each Person seeking
indemnification under this Article 9 (the "INDEMNIFIED PARTY") shall promptly
notify the other party obligated to provide indemnification (the "INDEMNIFYING
PARTY") of any Claim as to which indemnity may be sought in writing; PROVIDED,
HOWEVER, that failure to provide prompt notice relieves the Indemnifying Party
of its obligations under this Agreement only to the extent that such failure
prejudices the Indemnifying Party hereunder. The Indemnified Party has the right
to control the defense of such Claim and the Indemnifying Party is entitled to
participate in the defense of such Claim. In no event shall an Indemnifying
Party be liable for any settlement or compromise effected without its prior
consent and the Indemnifying Party, in the defense of any such Claim, shall not,
except with the prior consent of the Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term a release of the Indemnified Party from all liability in respect to such
Claim by the claimant or plaintiff. Notwithstanding any other provision of this
Section 9.5, the Sellers shall not have the right to defend a claim and control
the defense, settlement and prosecution of any litigation if such claim or
litigation arises with respect to, or relates to, an investigation brought
against Target, Buyer or Parent by or on behalf of the United States or any
state government (collectively, "GOVERNMENT CLAIMS"). Buyer and Parent shall
have the right to defend, compromise and settle any Government Claims and the
Sellers shall continue to indemnify Buyer and Parent with respect to such
Government Claims pursuant to this Section 9.6.
9.7 CLAIMS FOR INDEMNITY. The Indemnifying Party shall, within 10
business days of its receipt of written notice from the Indemnified Party
setting forth in reasonable detail the amount of Losses for which the
Indemnified Party is entitled to indemnification under this Article 9 (such
amount being hereinafter referred to as the "INDEMNIFIABLE LOSS") examine in
good faith the Indemnified Party's written notice and, if it deems appropriate,
send a written notice to the Indemnified Party disputing all or part of the
amount Indemnifiable Losses claimed by the Indemnified Party in such notice (a
"CONTESTED AMOUNT"). If the Indemnifying Party does not dispute the amount of
Indemnifiable Losses within such 10 business day period, the Indemnified Party
shall be entitled to full and prompt payment of such amount of Indemnifiable
Losses and in such event shall have the right to off-set such amounts from the
Notes. If the Indemnifying Party submits to the Indemnified Party a written
notice of dispute of the Contested Amount, the Indemnified Party and the
Indemnifying Party shall negotiate in good faith to resolve such dispute for a
period of two (2) weeks. If the parties are unable to resolve their dispute, the
Indemnified Party shall be entitled to prompt payment of any un-Contested Amount
and shall be entitled to payment of any Contested Amount, if any, on the date
that a court of competent jurisdiction shall enter a final judgment, order or
decree related to such Contested Amount. For purposes hereof, the Indemnifiable
Loss shall include the amounts so paid, or
-30-
determined to be owing, by the Indemnified Party together with costs and
reasonable attorneys' fees and interest on the foregoing items at the annual
rate of ten percent (10%) from the date of notice that the Indemnifiable Loss is
due from the Indemnifying Party to the Indemnified Party as provided above,
until the Indemnifiable Loss shall be paid. If such Indemnified Party does not
prevail in its enforcement action hereunder, it shall reimburse the Indemnifying
Party's reasonable costs in such action.
9.8 ADJUSTMENTS TO INDEMNIFICATION PAYMENTS.
(a) If the amount of any Indemnifiable Loss, at any time
subsequent to the making of an indemnity payment by the Indemnifying Party, is
reduced by recovery, settlement or otherwise under or pursuant to any insurance
coverage, or pursuant to any Claim, recovery, settlement or payment by or
against any third Person, the amount of such reduction, less any costs, expenses
or premiums incurred in connection therewith (together with interest thereon
from the date of payment thereof at the rate of ten percent (10%) per annum),
will promptly be repaid by the Indemnified Party to the Indemnifying Party. Upon
making any indemnity payment the Indemnifying Party will, to the extent of such
indemnity payment, be subrogated to all rights of the Indemnified Party against
any third Person that is not an Affiliate of the Indemnified Party in respect of
the Indemnifiable Loss to which the indemnity payment relates; PROVIDED,
HOWEVER, that (i) the Indemnifying Party shall then be in compliance with its
obligations under this Agreement in respect of such Indemnifiable Loss and (ii)
until the Indemnified Party recovers full payment of its Indemnifiable Loss, any
and all Claims of the Indemnifying Party against any such third Person on
account of said indemnity payment will be subrogated and subordinated in right
of payment to the rights of the Indemnified Party against such third Person.
Without limiting the generality or effect of any other provision hereof, each
such Indemnified Party and Indemnifying Party will duly execute upon request all
instruments reasonably necessary to evidence and perfect the above-described
subrogation and subordination rights. The Indemnified Party shall use its
reasonable efforts to make insurance Claims relating to any Claim for which it
is seeking indemnification pursuant to this Article 9; provided that the
Indemnified Party shall not be obligated to make such an insurance Claim if the
Indemnified Party in its reasonable judgment believes that the cost of pursuing
such an insurance Claim together with any corresponding increase in insurance
premiums or other chargebacks to the Indemnified Party would exceed the value of
the insurance Claim relating to any Claim for which the Indemnified Party is
seeking indemnification.
(b) If an Indemnifiable Loss relates to Taxes resulting from the
inclusion of income or disallowance of deductions in a period ending prior to or
on the Closing Date and all or a portion of such income or deduction is excluded
or allowed, respectively, in another period ending prior to or on the Closing
Date, the amount of the Indemnified Loss shall be limited to the net Tax
increase for such periods and the net amount of interest and penalties incurred
with respect thereto.
9.9 NO OTHER REPRESENTATIONS, ETC.; RESCISSION. Except as set forth
in this Agreement, no party makes any representation, warranty, covenant or
agreement with respect to the matters contained herein. Notwithstanding anything
herein to the contrary, no breach of any representation, warranty, covenant or
agreement of any party contained herein shall give rise to
-31-
any right on the part of any party, after the consummation of the purchase and
sale of the Shares contemplated hereby, to rescind this Agreement or any of the
transactions contemplated hereby.
9.10 SOLE AND EXCLUSIVE REMEDY. The indemnification provided under
this Article 9 shall constitute the sole and exclusive remedy of any Indemnified
Party subsequent to the Closing for any Losses sustained by such Indemnified
Party as a result of any breach of this Agreement, including any inaccuracy of
the Officers' Certification provided to Buyer pursuant to Section 6.1(a)(iv),
other than losses or liabilities based upon fraud or fraudulent
misrepresentation, it being expressly understood that the right of set-off
against the principal and interest under the Notes shall constitute the sole and
exclusive remedy subsequent to the Closing of any Indemnified Person for any
Losses sustained by such Indemnified Person as a result of any breach of this
Agreement by the Sellers including any inaccuracy of the Officers' Certification
provided to Buyer pursuant to Section 6.1(a)(iv).
9.11 SURVIVAL OF INDEMNIFICATION OBLIGATIONS. The indemnification and
other obligations of Seller, Buyer and Parent under this Article 9 shall survive
for the same period of time set forth in Section 9.1, and shall terminate with
the expiration of such survival period. Claims or demands asserted prior to the
expiration of such period shall survive until final resolution thereof.
ARTICLE 10
MISCELLANEOUS
10.1 NOTICES. All notices, requests, demands, and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if personally delivered by courier, or if mailed, when mailed by
United States first-class, certified or registered mail, postage prepaid, to the
other party at the following addresses or by telecopy, receipt confirmed (or at
such other address as shall be given in writing by any party to the other):
If to Buyer or Parent, to:
Allion Healthcare, Inc.
00 Xxxx Xxxxxxx Xxxx, Xxxxx 000X
Xxxxxxxxxx Xxxxxxx, Xxx Xxxx 00000
Fax: (000) 000-0000
Attention: Xxxxxxx X. Xxxxx
With a copy to:
XxXxxxxxx, Will & Xxxxx
00 Xxxxxxxxxxx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Fax: (000) 000-0000
Attention: Xxxxxx X. Xxxxxxxxxx, Esq.
-32-
If to Sellers, to:
Xxxxx Xxxxxxxx
00 Xxxxxxxxx
Xxxx xx Xxxx, XX 00000
and
Xxxxx X. Xxxxxxxx
00000 Xxxxxx Xxxxxx
Xxxxxxxx, XX 00000
With a copy to:
Xxxxxx Godward LLP
0000 Xxxxxxxx Xxxx
Xxx Xxxxx, Xxxxxxxxxx 00000
Fax: (000) 000-0000
Attention: Xxxxxxxxx X. Xxxxx, Esq.
Xxxxx X. Xxxxxxxxxx, Esq.
10.2 SUCCESSORS AND ASSIGNS. This Agreement, and all rights and
powers granted hereby, will bind and inure to the benefit of the parties hereto
and their respective successors and assigns, but neither this Agreement nor any
of the rights, interests, or obligations hereunder shall be assigned by any of
the parties hereto without the prior written consent of the other parties
hereto, except that Parent and Buyer are entitled to assign all or part of their
rights and obligations under this Agreement to an Affiliate of Buyer or Parent,
PROVIDED, HOWEVER, that Buyer or Parent, as the case may be, shall remain fully
responsible for the performance of its obligations hereunder.
10.3 CONSTRUCTION. The parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumption or burden of proof shall
arise favoring or disfavoring any party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The parties intend
that each representation, warranty, and covenant contained herein shall have
independent significance. If any party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that there
exists another representation, warranty, or covenant relating to the same
subject matter (regardless of the relative levels of specificity) which the
party has not breached shall not detract from or mitigate the fact that the
party is in breach of the first representation, warranty, or covenant. All
pronouns and any variations thereof refer to the masculine, feminine or neuter,
singular or plural, as the identity of the Person or Persons may require. All
references herein to Articles, Sections (other than Sections of the Code
-33-
or any other statute) and subsections shall be deemed to be references to
Articles, Sections and subsections of this Agreement unless the context shall
otherwise require.
10.4 GOVERNING LAW. WITH RESPECT TO CORPORATE GOVERNANCE MATTERS
CONCERNING A CORPORATION OF ANY JURISDICTION, THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF SUCH JURISDICTION. WITH RESPECT
TO ALL OTHER MATTERS, THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO THE
CONFLICTS OF LAW PROVISIONS THEREOF.
10.5 CONSENT TO JURISDICTION. The Parties hereby agree that any
action, proceeding or claim against it arising out of, or relating in any way
to, this Agreement may be brought and enforced in the courts of the State of
California or of the United States of America located in the State of
California, and irrevocably submits to such jurisdiction for such purpose. The
Parties hereby irrevocably waive any objection to such exclusive jurisdiction or
inconvenient forum. Any such process or summons to be served upon any of the
Parties (at the option of the party bringing such action, proceeding or claim)
may be served by transmitting a copy thereof, by registered or certified mail,
return receipt requested, postage prepaid, addressed to it at the address set
forth in Section 10.1 hereof. Such mailing shall be deemed personal service and
shall be legal and binding upon the Party so served in any action, proceeding or
claim.
10.6 HEADINGS. The headings preceding the text of the sections and
subsections hereof are inserted solely for convenience of reference and shall
not constitute a part of this Agreement, nor shall they affect its meaning,
construction, or effect.
10.7 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but which together
shall constitute one and the same instrument.
10.8 FURTHER ASSURANCES. Both before and after Closing hereunder,
each party shall cooperate and take such action as may be reasonably requested
by another party in order to more fully carry out the provisions and purposes of
this Agreement and the transactions contemplated hereby.
10.9 COURSE OF DEALING. No course of dealing and no delay on the part
of any party hereto in exercising any right, power, or remedy conferred by this
Agreement shall operate as a waiver thereof or otherwise prejudice such party's
rights, powers and remedies. The failure of any of the parties to this Agreement
to require the performance of a term or obligation under this Agreement or the
waiver by any of the parties to this Agreement of any breach hereunder shall not
prevent subsequent enforcement of such term or obligation or be deemed a waiver
of a subsequent breach hereunder. No single or partial exercise of any rights,
powers or remedies conferred by this Agreement shall preclude any other or
further exercise thereof or the exercise of any other right, power or remedy.
10.10 SEVERABILITY. This Agreement shall be deemed severable, and the
invalidity or unenforceability of any term or provision hereof shall not affect
the validity or enforceability of this Agreement or of any other term or
provision hereof. Furthermore, in lieu of any such invalid or unenforceable term
or provision, the parties hereto intend that there shall be added as a part of
-34-
this Agreement a provision as similar in terms to such invalid or unenforceable
provision as may be valid and enforceable, so as to effect the original intent
of the parties to the greatest extent possible.
10.11 ENTIRE AGREEMENT. This Agreement and the Schedules, Exhibits
and Certificates hereto, each of which is hereby incorporated herein, set forth
all of the promises, covenants, agreements, conditions, and undertakings between
the parties hereto with respect to the subject matter hereof and supersede all
prior and contemporaneous agreements and understandings, inducements, or
conditions, express or implied, oral or written. This Agreement may not be
amended except by an instrument in writing signed by the party sought to be
charged with effect of such amendment.
[signature page follows]
-35-
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
the day and year first above written.
MOMS PHARMACY, INC.
By: ________________________
Name:
Title:
ALLION HEALTHCARE, INC.
By: ________________________
Name:
Title:
XXXXX X. XXXXXXXX
By: ________________________
XXXXX X. XXXXXXXX
By: ________________________
[signature page to stock purchase agreement]
-36-
Exhibit A
DEFINITIONS
"ACQUISITION PROPOSAL" has the meaning specified in Section 4.8.
"AFFILIATE" means, when used with respect to any Person, (a) if such Person is a
corporation, any officer or director thereof or any Person which is, directly or
indirectly, beneficial owner (by itself or as part of any group) of more than
fifty percent (50%) of any class of any voting security thereof, (b) if such
Person is an LLC, any officer or manager thereof or any Person which is,
directly or indirectly, beneficial owner (by itself or as part of any group) of
more than fifty percent (50%) of any class of any voting interest therein, (c)
if such Person is a partnership, any general partner thereof or any Person which
is, directly or indirectly, beneficial owner (by itself or as part of any group)
of more than fifty percent (50%) of any limited partnership interest thereof,
and (d) any other Person which directly or indirectly, through one or more
intermediaries controls, is controlled by, or is under common control with, such
Person. For purposes of this definition: (i) any "BENEFICIAL OWNER" that is a
partnership shall be deemed to include any general or limited partner thereof,
any "BENEFICIAL OWNER" that is an LLC shall be deemed to include any Person
controlling, controlled by or under common control with such beneficial owner,
or any officer, manager or member of such beneficial owner or of any LLC
occupying any such control relationship, and any "BENEFICIAL OWNER" that is a
corporation shall be deemed to include any Person controlling, controlled by or
under common control with such beneficial owner, or any officer or director of
such beneficial owner or of any corporation occupying any such control
relationship; and (ii) "CONTROL" (including the correlative terms "CONTROLLING,"
"CONTROLLED BY" and "UNDER COMMON CONTROL WITH"), with respect to any Person,
shall mean possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of such Person, whether through the
ownership of voting securities or by contract or otherwise.
"AGREEMENT" has the meaning specified in the Introduction hereto.
"BENEFICIARY" means the Person(s) designated by an employee, former employee, by
operation of law or otherwise, as the party entitled to compensation, benefits,
damages, insurance coverages, indemnification, or any other goods or services
under any Benefit Plan.
"BENEFIT PLANS" has the meaning specified in Section 2.29(a).
"BEST KNOWLEDGE OF THE SELLERS " and similar phrases are limited to the actual
knowledge of the individual Sellers and means that no such individual has actual
knowledge of any state of facts which is different from the facts described in
this Agreement or the schedules, after due inquiry and investigation.
"BOOKS AND RECORDS" includes the original and all copies of reports, books,
manuals, financial statements, or reports, price books, confirmations,
telegrams, receipts, inventory books, contracts, printed matters, computer
printouts, teletypes, invoices, transcripts, analyses, Returns, minutes,
accounts, estimates, projections, comparisons, press releases, reviews,
opinions, studies and investigations, graphic representations of any kind
(including photographs, charts, graphs,
A-1
videotape and motion pictures, electronic and mechanical records, tapes,
cassettes, discs, and recordings, whether preserved in writing, phone record,
film, tape, videotape, or computer record).
"BUSINESS" has the meaning specified in the Introduction hereto.
"BUYER" has the meaning specified in the Introduction hereto.
"BYLAWS" means the bylaws of any corporation organized under the laws of any
State of the United States of America and any equivalent document of any
corporation or entity organized under the laws of another jurisdiction, as
amended or restated through the date hereof or the Closing Date, as the case may
be.
"CERCLA" has the meaning specified in Section 2.18(b) hereto.
"CHARTER" means the Certificate of Incorporation or Formation, Articles of
Incorporation or Organization or other organizational document of a corporation
or an LLC organized under the laws of any State of the United States of America
and any equivalent document of a corporation, LLC or other similar entity
organized under the laws of another jurisdiction, as amended or restated through
the date hereof or the Closing Date, as the case may be.
"CLAIM" means an action, suit, proceeding, hearing, investigation, litigation,
charge, complaint, claim or demand.
"CLOSING" has the meaning specified in Section 1.4.
"CLOSING DATE" has the meaning specified in Section 1.4.
"CODE" means the Internal Revenue Code of 1986 and valid interpretations
thereof, as reflected in Treasury regulations, published IRS rulings and court
decisions.
"COMPETITIVE BUSINESS" has the meaning specified in Section 8.3.
"CONFIDENTIAL INFORMATION" has the meaning specified in Section 8.4.
"CONTRACTS" has the meaning specified in Section 2.17(a).
"DISCLOSURE SCHEDULES" shall the Sellers' Disclosure Schedules delivered to
Buyer in connection with the transactions contemplated hereby.
"ENVIRONMENTAL LAWS" shall mean all federal, state or local laws, including
without limitation, common law, ordinances, requirements, rules, regulations,
licenses, permits, orders, injunctions, judgments, or decrees relating to or
addressing the environment, land use, or health and safety for the benefit and
protection of the general public but excluding Worker Health and Safety Laws,
which shall include the use, handling or disposal of any contaminant,
subsidence, water drainage, treatment, impoundment, nuisances and zoning.
"EQUITY PERCENTAGE" has the meaning specified in the Introduction hereto.
A-2
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended.
"ERISA AFFILIATE" has the meaning specified in Section 2.29(d).
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended, and
the regulations promulgated thereunder.
"EXCESS SETTLEMENT AMOUNT" has the meaning specified in Section 1.7(c).
"FINANCIAL STATEMENT DATE" has the meaning specified in Section 2.8(a).
"FINANCIAL STATEMENTS" has the meaning specified in Section 2.8(a).
"GAAP" means United States generally accepted accounting principles set forth in
the opinions and pronouncements of the Accounting Principles Board and the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession, which are applicable to the circumstances as of the
date of determination, consistently applied.
"GENERAL RELEASE" means a General Release to be executed by each Seller, Buyer
and Parent, a form of which is attached hereto as Exhibit J.
"GOVERNMENTAL AUTHORITY" means all agencies, instrumentalities, departments,
commissions, courts, tribunals, or boards of any government, whether foreign,
federal, state, or local.
"GOVERNMENT CLAIMS" has the meaning specified in Section 9.6.
"HAZARDOUS SUBSTANCES" means any pollutant, hazardous substance, radioactive
substance, toxic substance, hazardous waste, medical waste, radioactive waste,
special waste, petroleum or petroleum-derived substance or waste, asbestos,
polychlorinated biphenyls, or any hazardous or toxic constituent thereof and
includes, but is not limited to, any substance defined in or regulated under
Environmental Laws.
"INDEBTEDNESS PAYOFF LETTER" means a letter from California Federal Bank, FSB,
which letter sets forth the principal amount plus accrued interest and fees and
penalties, if any, guaranteed by Target to such creditor as of the Closing Date.
"INDEMNIFIABLE LOSS" has the meaning specified in Section 9.7.
"INDEMNIFIED PARTY" has the meaning specified in Section 9.6.
"INDEMNIFYING PARTY" has the meaning specified in Section 9.6.
"INTELLECTUAL PROPERTY" has the meaning specified in Section 2.23
"INTERIM STATEMENTS" has the meaning specified in Section 2.8(a)
A-3
"IRS" means the Internal Revenue Service and any similar or successor agency of
the federal government of the United States of America administering the Code.
"LEASED REAL PROPERTY INTERESTS" has the meaning specified in Section 2.21(b).
"LICENSES" has the meaning specified in Section 2.18(c).
"LIEN" means, with respect to any asset or right, any mortgage, deed of trust,
pledge, hypothecation, assignment, security interest, lien, charge, restriction,
adverse claim or right whatsoever, title defect or encumbrance of any kind
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any assignment or other conveyance of any right to receive
income and any assignment of receivables with recourse against assignor), any
filing of any financing statement as debtor under the Uniform Commercial Code or
comparable law of any jurisdiction and any agreement to give or make any of the
foregoing except with respect to securities, restrictions on transferability
imposed by federal and state securities laws.
"LLC AGREEMENT" means the limited liability company agreement, operating
agreement or any equivalent document of any LLC organized under the laws of any
State of the United States of America or any LLC or other similar entity
organized under the laws of another jurisdiction, as amended and restated
through the date hereof or the Closing Date, as the case may be.
"LLC" means limited liability company.
"LOSSES" has the meaning specified in Section 9.2.
"MATERIAL" and "MATERIALLY" and derivatives thereof, whether capitalized or not,
when used to qualify a representation, warranty, or covenant contained in this
Agreement shall mean, unless otherwise defined, or unless the context requires
otherwise, either (i) that there is a reasonable probability, under all the
circumstances and in view of the total mix of information available, that a
reasonable person in the position of the party relying thereon would attach
importance in deciding whether to enter into and consummate this Agreement in
accordance with the specific terms contained herein.
"MATERIAL ADVERSE EFFECT ON TARGET" means an occurrence or event which has or is
reasonably likely to have a material adverse impact or effect on the business,
operations or financial condition of Target; PROVIDED HOWEVER, that in no event
shall any of the following, in and of themselves, constitute a Material Adverse
Effect on the Target: (A) any adverse change, effect or occurrence
A-4
attributable to the U.S. economy as a whole, the industries in which the Target
competes, or (B) any act or threat of terrorism or war anywhere in the world,
any armed hostilities or terrorist activities anywhere in the world, any threat
or escalation of armed hostilities or terrorist activities anywhere in the world
or any governmental or other response or reaction to any of the foregoing.
"MATERIAL ADVERSE EFFECT ON BUYER OR PARENT" means an occurrence or event which
has or is reasonably likely to have a material adverse impact or effect on the
business, operations, or financial condition of Buyer or Parent, respectively
and its subsidiaries, taken as a whole; PROVIDED HOWEVER, that in no event shall
any of following, in and of themselves, constitute a Material Adverse Effect on
Buyer or Parent: (A) any adverse change, effect or occurrence attributable to
the U.S. economy as a whole, the industries in which the Buyer competes, or (B)
any act or threat of terrorism or war anywhere in the world, any armed
hostilities or terrorist activities anywhere in the world, any threat or
escalation of armed hostilities or terrorist activities anywhere in the world or
any governmental or other response or reaction to any of the foregoing.
"NET WORTH" means the difference between Target's Assets and the total
liabilities of Target as set forth in the Target's balance sheet as "total
equity".
"NEUTRAL FIRM" means a nationally recognized accounting firm (other than
Deloitte & Touche LLP) mutually acceptable to and agreed upon by Buyer and
Seller which shall have no material financial relationship with any party to
this Agreement.
"NOTES" has the meaning specified in Section 1.5(c).
"PARENT" has the meaning specified in the Introduction hereto.
"PARENT SEC REPORTS" has the meaning specified in Section 3.5.
"PAYMENT PROGRAM/FRAUD AND ABUSE CLAIM" has the meaning specified in Section
9.5(c).
"PERMITS" has the meaning specified in Section 2.32.
"PERMITS AND CONSENTS" has the meaning specified in Section 4.6.
"PERMITTED LIENS" means (i) liens for current ad valorem taxes not yet
delinquent and other inchoate statutory liens for charges not yet due and
payable; (ii) private, public and utility easements, rights of way and roads and
highways, if any, which do not individually or in the aggregate materially
interfere with the conduct of the Business as presently conducted; (iii)
building and zoning regulations of the jurisdictions in which the Real Property
Interests are located; (iv) matters of public record; (v) those facts which
might be disclosed by an accurate survey of the Real Property Interests; and
(vi) such facts and circumstances that are plainly visible or reasonably
discernable by an actual view of the Real Property Interests
"PERSON" means any natural person, corporation, business trust, trust, estate,
partnership, limited partnership, LLC, limited liability partnership,
association, joint venture, or other entity.
"PERSONAL PROPERTY" has the meaning specified in Section 2.22. "PRE-CLOSING
PERIOD" has the meaning specified in Section 4.1.
"PRO RATA" means pro rata based on the number of Shares owned by each Seller on
the Closing Date.
"PURCHASE DOCUMENTS" means this Agreement and any other certificate, document,
instrument, stock power or agreement executed in connection herewith.
"PURCHASE PRICE" has the meaning specified in Section 1.2.
"XXXXXXX LETTER" has the meaning specified in Section 1.7(a).
A-5
"REAL PROPERTY INTERESTS" has the meaning specified in Section 2.21(b).
"REALTY LEASES" has the meaning specified in Section 2.21(b).
"RELATED PARTY" means any Seller, any of the members, managers, officers or
directors of any Seller or any Affiliate of any Seller or any of their
respective members, managers, officers or directors, or any Person in which any
Seller has any direct or material indirect interest.
"RELATED PARTY BALANCES" has the meaning specified in Section 2.25 hereto.
"RELATED TRANSACTIONS" has the meaning specified in the Introduction hereto.
"RELEASE" means the release, spill, emission, leaking, pumping, injection,
deposit, disposal, discharge, dispersal, leaching or migrating into the indoor
or outdoor environment of any contaminant through or in the air, soil, surface
water, groundwater or real property.
"REQUIRED PERMITS AND CONSENTS" has the meaning specified in Section 4.6.
"RETURNS" means all reports, estimates, declarations of estimated tax,
information statements, forms, and returns relating to, or required to be filed
in connection with, any Taxes, including information returns or reports with
respect to backup withholding and other payments to third parties.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended, and the
regulations promulgated thereunder.
"SECURITY AGREEMENT" means the Security Agreement attached hereto as Exhibit C.
"SELLER" has the meaning specified in the Introduction hereto.
"SELLERS' DISCLOSURE SCHEDULE" has the meaning specified in the introduction to
Article 2.
"SETTLEMENT AMOUNT" has the meaning specified in Section 1.7(a).
"SFAS 87" has the meaning specified in Section 2.29(d).
"SHARES" has the meaning specified in the Introduction hereto.
"SUBSIDIARIES" has the meaning specified in the Introduction hereto.
"TARGET" has the meaning specified in the Introduction hereto.
"TARGET ASSETS" means the assets of Target used or held for use in the Business.
"TAXES" OR "TAX" means all taxes, however, denominated, including any interest,
penalties or other additions to tax that may become payable in respect thereof,
imposed by any federal, territorial, state, local or foreign government or any
agency or political subdivision of any such government, which taxes shall
include, without limiting the generality of the foregoing, all income or profits
taxes (including federal income taxes and state income taxes), real property
A-6
gains taxes, payroll and employee withholding taxes, unemployment insurance
taxes, social security taxes, sales and use taxes, ad valorem taxes, excise
taxes, franchise taxes, occupation taxes, real and personal property taxes,
stamp taxes, environmental taxes, transfer taxes and other governmental charges,
and other obligations of the same or of a similar nature to any of the
foregoing, which any Target is required to pay, withhold or collect.
"TRANSACTION AGREEMENTS" means (i) this Agreement, (ii) the Warrants, (iii) the
Notes, (iv) the Security Agreement, and (v) the General Release.
"TRIGGER AMOUNT" has the meaning specified in Section 9.5(c).
"UNAUDITED FINANCIAL STATEMENTS" has the meaning specified in Section 2.8(a)
hereto.
"WORKER HEALTH AND SAFETY LAWS" shall mean all federal, state or local laws,
including ordinances, requirements, rules, regulations, licenses, permits,
orders, injunctions, judgments or decrees relating to or addressing workplace or
worker safety and health.
"WARRANTS" has the meaning specified in Section 1.2.
A-7
