================================================================================
AGREEMENT AND PLAN OF REORGANIZATION
AMONG
BMJ MEDICAL MANAGEMENT, INC.,
OMNI ACQUISITION CORPORATION,
ORTHOPAEDIC MANAGEMENT NETWORK, INC.,
AND
THE SHAREHOLDERS' REPRESENTATIVE
OCTOBER 6, 1997
================================================================================
TABLE OF CONTENTS
-----------------
Page
SECTION 1. GENERAL.......................................................... 1
1.1. The Merger....................................................... 1
1.2. Effective Time of the Merger..................................... 2
1.3. Effect of the Merger............................................. 2
1.4. Charter, By-Laws, Officers and Directors of
Surviving Corporation........................................ 2
1.5. Taking of Necessary Action; Further
Assurances................................................... 2
1.6. Authorization of the Merger, this Agreement
and the Articles of Merger................................... 2
1.7. The Closing...................................................... 3
SECTION 2. PAYMENT OF PURCHASE PRICE; EFFECT OF MERGER
ON CAPITAL STOCK OF CONSTITUENT
CORPORATIONS................................................. 3
2.1. Effect on Capital Stock.......................................... 3
2.2. Delivery of Funds; Surrender of Certificates..................... 6
2.3. Escrow Agreement; Delivery of Certificates....................... 6
2.4. No Further Ownership Rights in Company Common
Stock........................................................ 6
SECTION 3. ADJUSTMENT OF AGGREGATE MERGER CONSIDERATION..................... 7
3.1. Delivery of Revenues Statement................................... 7
3.2. Purchase Price Adjustments....................................... 8
(a) First Equity Adjustment.......................................... 8
(b) Second Equity Adjustment......................................... 9
3.3. Payments......................................................... 9
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE
COMPANY...................................................... 9
4.1. Organization; Good Standing; Qualification
and Power........................................................ 9
4.2. Equity Investments.............................................. 10
4.3. Capital Stock................................................... 10
4.4. Authority; Noncontravention; Consents........................... 10
4.5. Financial Statements............................................ 11
4.6. Absence of Undisclosed Liabilities.............................. 12
4.7. Absence of Changes.............................................. 12
4.8. Tax Matters..................................................... 13
4.9. Title to Assets, Properties and Rights and
Related Matters............................................. 14
4.10. Real Property-Owned or Leased................................... 14
4.11. Intellectual Property........................................... 14
4.12. Agreements, No Defaults, Etc.................................... 14
4.13. Litigation, Etc................................................. 15
4.14. Compliance; Governmental Authorizations......................... 16
4.15. Insurance....................................................... 16
4.16. Employees; ERISA Compliance..................................... 16
4.17. Environmental Matters........................................... 16
4.18. Brokers......................................................... 17
4.19. Accounts and Notes Receivable................................... 17
-i-
4.20. Accounts and Notes Payable...................................... 17
4.21. Bank Accounts; Powers of Attorney............................... 17
4.22. Related Transactions............................................ 17
4.23. Burdensome Restrictions......................................... 18
4.24. Disclosure...................................................... 18
SECTION 5. REPRESENTATIONS AND WARRANTIES OF PARENT AND
ACQUISITION SUB............................................. 18
5.1. Organization; Good Standing; Qualification
and Power....................................................... 18
5.2. Authority....................................................... 18
5.3. Noncontravention; Consents...................................... 19
5.4. Capital Stock................................................... 19
5.5. Financial Statements............................................ 20
5.6. Absence of Undisclosed Liabilities.............................. 20
5.7. Absence of Changes.............................................. 21
5.8. Tax Matters..................................................... 21
5.9. Title to Assets, Properties and Rights and
Related Matters............................................. 22
5.10. Intellectual Property........................................... 22
5.11. Litigation, Etc................................................. 23
5.12. Compliance; Governmental Authorizations......................... 23
5.13. Brokers......................................................... 23
5.14. Disclosure...................................................... 23
SECTION 6. CONDUCT AND TRANSACTIONS PRIOR TO THE
CLOSING; ADDITIONAL PRE-CLOSING
AGREEMENTS.................................................. 24
6.1. Affirmative Covenants of the Company............................ 24
6.2. Negative Covenants of the Company............................... 24
6.3. Consents........................................................ 26
6.4. Efforts to Consummate........................................... 26
6.5. Notice of Prospective Breach.................................... 26
6.6. Public Announcements............................................ 26
6.7. Negotiation with Others; Disposition and
Voting of Securities........................................ 26
6.8. Shareholders' Representative.................................... 27
SECTION 7. CONDITIONS...................................................... 28
7.1. Conditions to Each Party's Obligations to
Effect the Merger.......................................... 28
(a) Approvals....................................................... 28
(b) No Injunctions or Restraints.................................... 28
(c) Statutes........................................................ 28
7.2. Conditions to Obligations of Parent and
Acquisition Sub............................................. 28
(a) Accuracy of Representations and Warranties...................... 28
(b) Performance of Obligations of the Company....................... 29
(c) Authorization................................................... 29
(d) Opinion of the Company's Counsel................................ 29
(e) Consents and Approvals.......................................... 29
(f) Government Consents, Authorizations, Etc........................ 29
(g) Corporate Resolutions........................................... 29
(h) Absence of Material Adverse Change.............................. 30
(i) Officer's Certificate........................................... 30
-ii-
(j) Restated Management Agreement................................... 30
(k) Restricted Stock Agreement...................................... 30
(l) Escrow Agreement................................................ 30
(m) Company's Expenses.............................................. 30
(n) Due Diligence................................................... 31
7.3 Conditions to Obligations of the Company........................ 31
(a) Accuracy of Representations and Warranties...................... 31
(b) Performance of Obligations of Parent and
Acquisition Sub............................................. 31
(c) Authorization................................................... 31
(d) Government Consents, Authorizations, Etc........................ 31
(e) Corporate Resolutions........................................... 32
(f) Officer's Certificate........................................... 32
(g) Restated Management Agreement................................... 32
(h) Restricted Stock Agreements..................................... 32
(i) Escrow Agreement................................................ 32
SECTION 8. POST-CLOSING COVENANTS.......................................... 32
8.1. Parent Contributions............................................ 32
8.2. Ancillary Services.............................................. 33
SECTION 9. INDEMNIFICATION................................................. 34
9.1. Indemnification Generally; Etc.................................. 34
(a) In Favor of the Buyer Group..................................... 34
(b) In Favor of the Company......................................... 34
9.2. Limitations on Indemnification.................................. 34
(a) Indemnity Limitations against the Escrow
Amount...................................................... 34
(b) Indemnity Limitations for the Buyer Group....................... 35
9.3. Assertion of Claims............................................. 35
9.4. Notice and Defense of Third Party Claims........................ 35
9.5. Survival of Representations and Warranties...................... 37
9.6. No Third Party Reliance......................................... 37
SECTION 10. TERMINATION; EFFECT OF TERMINATION.............................. 38
10.1. Termination..................................................... 38
10.2. Effect of Termination........................................... 39
SECTION 11. MISCELLANEOUS PROVISIONS........................................ 39
11.1. Expenses........................................................ 39
11.2. Amendment....................................................... 39
11.3. Extension; Waiver............................................... 39
11.4. Entire Agreement................................................ 40
11.5. Severability.................................................... 40
11.6. No Third-Party Beneficiaries; Successors and
Assigns..................................................... 40
11.7. Headings........................................................ 40
11.8. Notices......................................................... 40
11.9. Counterparts.................................................... 42
11.10. Governing Law................................................... 42
11.11. Incorporation of Exhibits and Schedules......................... 42
11.12. Construction.................................................... 42
11.13. Remedies........................................................ 42
11.14. Waiver of Jury Trial............................................ 42
-iii-
SCHEDULES AND EXHIBITS
Annex I - Definitions
Schedule I - Capitalization
Exhibit A - Form of Articles of Merger
Exhibit B - Form of Amended and Restated Articles of
Incorporation of the Company
Exhibit C - Form of Opinion of Company's Counsel
Exhibit D - Form of Restated Practice Management
Agreement
Exhibit E - Form of Restricted Stock Agreement
AGREEMENT AND PLAN OF
REORGANIZATION dated as of October
6, 1997, among BMJ MEDICAL
MANAGEMENT, INC., a Delaware
corporation ("Parent"), OMNI
ACQUISITION CORPORATION, an Arizona
corporation and wholly owned
subsidiary of Parent ("Acquisition
Sub"), ORTHOPAEDIC MANAGEMENT
NETWORK, INC., an Arizona
corporation (the "Company"), and
the SHAREHOLDERS' REPRESENTATIVE
(as defined herein).
The Company is engaged in the business (the "Subject Business") of (a)
arranging for the delivery of health care services by health care providers and
(b) providing management services to health care providers, including arranging
for providers to participate in group purchasing programs, group health
insurance plans and group malpractice insurance plans. The respective Boards of
Directors of each of Parent, Acquisition Sub and the Company have duly approved
and adopted this Agreement and Plan of Reorganization (this "Agreement"), the
Articles of Merger in substantially the form of Exhibit A attached hereto (the
"Articles of Merger") and the proposed merger (the "Merger") of Acquisition Sub
with and into the Company in accordance with, and subject to, the terms and
conditions of this Agreement, the Articles of Merger and the Arizona Business
Corporation Act (the "Arizona Statute") whereby, among other things, each issued
and outstanding share of common stock, no par value (the "Company Common
Stock"), of the Company not owned of record by the Company, will be converted
into the right to receive cash and capital stock of Parent in the manner set
forth in Sections 2 and 3 of this Agreement and the Articles of Merger. The
parties hereto intend that the transactions contemplated hereby be consummated
in a manner deemed to be a tax-free merger under Section 368 of the Internal
Revenue Code of 1986, as amended. Capitalized terms used but not defined herein
have the meanings set forth in Annex I hereto.
NOW, THEREFORE, in consideration of the premises and the mutual benefits to
be derived from this Agreement and the Articles of Merger and the
representations, warranties, covenants, agreements and conditions contained
herein and in the Articles of Merger, the parties hereto hereby agree as
follows:
SECTION 1. GENERAL
1.1. The Merger. In accordance with, and subject to, the provisions of this
Agreement, the Articles of Merger and the Arizona Statute, Acquisition Sub shall
be merged with and into the Company, which, at and after the Effective Time,
shall be and is hereinafter sometimes referred to as the "Surviving
Corporation." Acquisition Sub and the Company are hereinafter sometimes
collectively referred to as the "Constituent Corporations."
1.2. Effective Time of the Merger. The Merger shall become effective upon
the filing by the Constituent Corporations of the Articles of Merger with the
Arizona Corporation Commission. The Articles of Merger shall be executed and
delivered in the manner provided under the Arizona Statute. The date and time
when the Merger shall become effective is referred to herein as the "Effective
Time."
1.3. Effect of the Merger. Except as specifically set forth herein or in
the Articles of Merger, at the Effective Time, the identity, existence,
corporate organization, purposes, powers, objects, franchises, privileges,
rights, immunities, restrictions, debts, liabilities and duties (collectively,
the "Corporate Rights") of the Company shall continue in effect and be
unimpaired by the Merger, and the Corporate Rights of Acquisition Sub shall be
merged with and into the Company, which shall, as the Surviving Corporation, be
fully vested therewith. At the Effective Time, the separate existence and
corporate organization of Acquisition Sub shall cease, and Acquisition Sub shall
be merged with and into the Surviving Corporation.
1.4. Charter, By-Laws, Officers and Directors of Surviving Corporation.
From and after the Effective Time, (a) the articles of incorporation of the
Company shall be amended and restated in their entirety to read as set forth in
Exhibit B hereto and, as so amended, such articles of incorporation shall be the
articles of incorporation of the Surviving Corporation until altered, amended or
repealed as provided in the Arizona Statute, (b) the by-laws of Acquisition Sub
shall become the by-laws of the Surviving Corporation, unless and until altered,
amended or repealed as provided in the Arizona Statute, the Surviving
Corporation's articles of incorporation or such by-laws; and (c) the officers
and directors of Acquisition Sub shall become the officers and directors of the
Surviving Corporation, respectively, unless and until removed, their respective
successors are appointed or until their respective terms of office shall have
expired in accordance with the Arizona Statute or the Surviving Corporation's
articles of incorporation or by-laws, as applicable.
1.5. Taking of Necessary Action; Further Assurances. Prior to the Effective
Time, and subject to the terms and conditions contained in this Agreement, the
parties hereto shall take or cause to be taken all such actions as may be
necessary or appropriate in order to effectuate, as expeditiously as reasonably
practicable, the Merger.
1.6. Authorization of the Merger, this Agreement and the Articles of
Merger. (a) On or before the Closing Date, the
-2-
Company shall call and hold (in compliance with the Arizona Statute) a meeting
of the holders (the "Shareholders") of the issued and outstanding shares of
Company Common Stock, at which meeting the Shareholders shall take a vote
regarding the approval and adoption of the Merger, this Agreement, the Articles
of Merger and consummation of the transactions contemplated hereby, as required
by the Arizona Statute. Parent, as the sole shareholder of Acquisition Sub,
shall execute a written consent in lieu of a meeting, which written consent
shall include resolutions approving and adopting the Merger, this Agreement, the
Articles of Merger and consummation of the transactions contemplated hereby, as
required by the Arizona Statute.
(b) The Company shall take, as promptly as practicable, all such other
actions as may be necessary or advisable under the Arizona Statute and any other
applicable law or regulation in connection with this Agreement, the Merger or
the Articles of Merger. The Company shall prepare and distribute any written
notice or other materials relating to the shareholder action contemplated by
Section 1.6(a) required to be delivered pursuant to the Company's Charter or
By-laws, the Arizona Statute or any other Federal or state law applicable to
this Agreement, the Merger, the Articles of Merger or such shareholder action
(collectively, the "Shareholder Materials"); provided, however, that Parent,
Acquisition Sub and their counsel shall have a reasonable opportunity to review
all Shareholder Materials and all Shareholder Materials shall be reasonably
satisfactory in form and substance to Parent, Acquisition Sub and their counsel.
1.7. The Closing. Unless this Agreement shall have been terminated and the
transactions contemplated by this Agreement shall have been abandoned pursuant
to the provisions of Section 10.1, and subject to the provisions of Section 7,
the closing of the transactions contemplated hereby (the "Closing") will take
place at 10:00 a.m. (New York time) on Friday, October 3, 1997 or such other
date (the "Closing Date") to be mutually agreed upon by the parties, which date
shall be no later than the fifth Business Day after all of the conditions set
forth in Section 7 (other than those conditions which are intended to only be
satisfied at Closing) shall have been satisfied (or waived in accordance with
Section 11.3). The Closing shall take place at the offices of X'Xxxxxxxx Graev &
Karabell, LLP, 00 Xxxxxxxxxxx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000, unless another
place is agreed to in writing by the parties.
SECTION 2. PAYMENT OF PURCHASE PRICE; EFFECT OF MERGER ON CAPITAL STOCK OF
CONSTITUENT CORPORATIONS
2.1. Effect on Capital Stock. (a) The following terms used in this
Agreement shall have the following respective meanings:
-3-
"Additional Equity Amount" means the sum of the First Equity
Contingency Amount and the Second Equity Contingency Amount.
"Cash Merger Consideration" means $63,000.
"Escrow Amount" means 28,518 shares of Parent Common Stock.
"First Equity Contingency Amount" means 14,259 shares of Parent Common
Stock, subject to adjustment pursuant to Sections 3 and 9 hereof.
"First Per Merger Share Contingency Amount" means an amount equal to
the quotient obtained by dividing (A) the First Equity Contingency Amount
by (B) the Share Number, rounded to the nearest whole share.
"Initial Equity Amount" means 28,518 shares of Parent Common Stock.
"Merger Consideration" means, with respect to any issued and
outstanding share of Company Common Stock, the Per Merger Share Cash
Amount, the Per Merger Share Stock Equivalent and the Per Merger Share
Additional Equity Amount, if any.
"Merger Shares" means the shares of Company Common Stock that are
issued and outstanding immediately prior to the Effective Time that are not
owned directly or indirectly by the Company (whether as treasury stock or
otherwise).
"Per Merger Share Additional Equity Amount" means the sum of the First
Per Merger Share Contingency Amount and the Second Per Merger Share
Contingency Amount.
"Per Merger Share Cash Amount" means an amount equal to the quotient
obtained by dividing (A) the Cash Merger Consideration by (B) the Share
Number, rounded to the nearest $.0001.
"Per Merger Share Stock Equivalent" means an amount equal to the
quotient obtained by dividing (A) the Initial Equity Amount by (B) the
Share Number, rounded to the nearest whole share.
"Second Equity Contingency Amount" means 14,259 shares of Parent
Common Stock, subject to adjustment pursuant to Sections 3 and 9 hereof.
"Second Per Merger Share Contingency Amount" means an amount equal to
the quotient obtained by dividing (A) the
-4-
Second Equity Contingency Amount by (B) the Share Number, rounded to the
nearest whole share.
"Share Number" means the number of Merger Shares.
"Stock Merger Consideration" means the sum of (i) the Initial Equity
Amount and (ii) the Additional Equity Amount, if any.
(b) Anything contained in this Agreement or the Articles of Merger to the
contrary notwithstanding, the entire consideration payable in the Merger with
respect to all Merger Shares shall not exceed the aggregate of the Cash Merger
Consideration and the Stock Merger Consideration. The manner and basis of
converting, exchanging or canceling the shares of capital stock of each of the
Constituent Corporations into or for cash and securities of Parent or securities
of the Surviving Corporation shall be as follows:
(i) each share of common stock, $.01 par value, of Acquisition Sub
issued and outstanding immediately prior to the Effective Time shall be
converted into one share of common stock, $.01 par value, of the Surviving
Corporation;
(ii) each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time and owned directly or indirectly by
the Company (whether as treasury stock or otherwise) shall, by virtue of
the Merger and without any action on the part of the holder thereof, be
canceled and no consideration shall be delivered in exchange therefor;
(iii) each Merger Share shall, by virtue of the Merger and without any
action on the part of the holder thereof, cease to be outstanding and be
converted into (A) the right to receive, at the Effective Time, (1) an
amount in cash equal to the Per Merger Share Cash Amount and (2) subject to
the terms and conditions of this Agreement and the Restricted Stock
Agreement, such number of shares of Parent Common Stock equal to the Per
Merger Share Stock Equivalent, (B) the right to receive after the third
anniversary of the Effective Time, subject to the terms and conditions set
forth in Sections 3.2(a) and 9 of this Agreement and the Escrow Agreement,
such additional number of shares of Parent Common Stock equal to the First
Per Merger Share Contingency Amount and (C) the right to receive after the
fourth anniversary of the Effective Time, subject to the terms and
conditions set forth in Sections 3.2(b) and 9 of this Agreement and the
Escrow Agreement, such additional number of shares of Parent
-5-
Common Stock equal to the Second Per Merger Share Contingency Amount;
(iv) each authorized but unissued share of Company Common Stock
immediately prior to the Effective Time shall be canceled.
2.2. Delivery of Funds; Surrender of Certificates. At the Effective Time,
upon (a) surrender by each Shareholder to the Surviving Corporation of the
certificate(s) which, immediately prior to the Effective Time, represented
Merger Shares and (b) execution of a Restricted Stock Agreement, such
Shareholder shall, from and after the Effective Time in accordance with the
provisions hereof, be entitled to receive in exchange therefor (x) an amount in
cash equal to the product obtained by multiplying the Per Merger Share Cash
Amount by the number of Merger Shares surrendered by such Shareholder, such
amount to be paid promptly by the Surviving Corporation or its designee by check
or wire transfer to an account designated by such Shareholder to Acquisition Sub
not later than three Business Days prior to the Closing and (y) a stock
certificate, registered in the name of such Shareholder, representing that
number of shares of Parent Common Stock equal to the product obtained by
multiplying the Per Merger Share Stock Equivalent by the number of Merger Shares
surrendered by such Shareholder. No interest will be paid or will accrue on the
Per Merger Share Amount payable upon the surrender of any certificates
representing Merger Shares. Until surrendered as contemplated by this Section
2.2 and the Articles of Merger, each certificate representing Merger Shares
shall be deemed, at and after the Effective Time, to represent only the right to
receive upon such surrender cash and securities as contemplated by this Section
2, Section 3.2, the Articles of Merger and the Arizona Statute.
2.3. Escrow Agreement; Delivery of Certificates. (a) On or prior to the
Closing Date, Acquisition Sub shall appoint a trust company reasonably
acceptable to the Company to act as escrow agent (the "Escrow Agent") in
connection with the Merger pursuant to the Escrow Agreement.
(b) At the Effective Time, upon the terms and conditions contained in this
Agreement and the Escrow Agreement, Parent shall deliver to the Escrow Agent
stock certificates registered in the name of the Shareholders representing in
the aggregate a number of shares of Parent Common Stock equal to the Additional
Equity Amount.
2.4. No Further Ownership Rights in Company Common Stock. The Merger
Consideration paid in respect of the surrender of certificates representing
shares of Company Common Stock in accordance with the provisions of this Section
2 and the Articles of Merger shall be deemed to have been paid in full
satisfaction of all rights pertaining to such shares of Company Common Stock.
-6-
At and after the Effective Time, the stock transfer books of the Surviving
Corporation shall be closed with respect to the capital stock of the Company,
and there shall be no further registration of transfers of the capital stock of
the Company thereafter on the records of the Surviving Corporation. If, after
the Effective Time, certificates representing shares of Company Common Stock are
presented to the Surviving Corporation for any reason, they shall be canceled
and exchanged as provided in this Section 2 and the Articles of Merger.
SECTION 3. ADJUSTMENT OF AGGREGATE MERGER CONSIDERATION
3.1. Delivery of Revenues Statement. (a) As promptly as practicable but in
no event later than 60 days after October 6, 2000 and October 6, 2001 (each such
date, a "Determination Date"), Parent shall cause the Surviving Corporation to
prepare and deliver to the Shareholders' Representative an unaudited statement
of revenues of the Company for the 12-month period concluding with the
applicable Determination Date (each, a "Revenues Statement"). The Revenues
Statement shall be prepared on a consistent basis with the methodologies used by
Parent in preparing its then current financial statements.
(b) During the 30 days immediately following receipt of the Revenues
Statement by the Shareholders' Representative, the Shareholders' Representative
and its accountants shall be entitled to review the Revenues Statement, and any
working papers, trial balances and similar materials relating to the Revenues
Statement prepared by the Surviving Corporation or its accountants, and the
Surviving Corporation shall provide the Shareholders' Representative and its
accountants with timely access at the Surviving Corporation's principal office,
during the Surviving Corporation's normal business hours, to the Surviving
Corporation's personnel, properties, books and records. The Revenues Statement
prepared by the Surviving Corporation shall become final and binding upon the
parties on the thirty-first day following receipt thereof unless the
Shareholders' Representative gives written notice to Parent and the Surviving
Corporation of its objection with the Revenues Statement (a "Notice of
Objection") prior to such date. Any Notice of Objection shall specify in
reasonable detail the nature of any objection so asserted. If a timely Notice of
Objection is received by Parent and the Surviving Corporation with respect to
the Revenues Statement, then the Revenues Statement (as revised in accordance
with clause (x) or (y) below) shall become final and binding upon the parties on
the earlier of (x) the date the parties hereto resolve in writing any
differences they have with respect to any matter specified in a Notice of
Objection or (y) the date any matters in dispute are finally resolved in writing
by the Accounting Firm (as defined below) (the date on which the Revenues
Statement so becomes final and binding being hereinafter referred to as the
"Final Determination Date"). During the 30
-7-
days immediately following the delivery of any Notice of Objection, Parent, the
Surviving Corporation and the Shareholders' Representative shall seek in good
faith to resolve in writing any differences which they may have with respect to
any matter specified in such Notice of Objection. During such period, Parent,
the Surviving Corporation and the Shareholders' Representative shall each have
access to the other party's working papers, trial balances and similar materials
prepared in connection with the other party's preparation of the Revenues
Statement and the Notice of Objection, as the case may be. At the end of such
30-day period, Parent, the Surviving Corporation and the Shareholders'
Representative shall submit to an independent "Big 6" public accounting firm
(the "Accounting Firm") for review and resolution any and all matters which
remain in dispute and which were included in any Notice of Objection, and the
Accounting Firm shall reach a final, binding resolution of all matters which
remain in dispute, which final resolution shall be (A) in writing, (B) furnished
to Parent, the Surviving Corporation and the Shareholders' Representative as
soon as practicable after the items in dispute have been referred to the
Accounting Firm, (C) made in accordance with this Agreement and (D) conclusive
and binding and not subject to collateral attack for any reason. The Revenues
Statement with any adjustments necessary to reflect the Accounting Firm's
resolution of the matters in dispute, shall become final and binding on the date
the Accounting Firm delivers its final resolution to the parties. The Accounting
Firm shall be such independent Big 6 public accounting firm other than Ernst &
Young, LLP (the "Parent's Accountants") as shall be agreed upon by the parties
hereto in writing or, if Parent and the Shareholders' Representative cannot so
agree within the 30-calendar day period referred to above, by lot from among the
remaining independent Big 6 public accounting firms willing to act. Each party
shall pay its own costs and expenses incurred in connection with such
arbitration, provided that the fees and expenses of the Accounting Firm shall be
paid 50% by Parent and 50% out of the Escrow Amount; provided, however, that the
amount payable out of the Escrow Amount shall be paid in shares of Parent Common
Stock (the number of which shall be determined using the then current Fair
Market Value for such shares), and Parent and the Shareholders' Representative
shall instruct the Escrow Agent to deliver such shares to Parent, and Parent
shall retain such shares and pay the corresponding amount in cash to the
Accounting Firm.
3.2. Purchase Price Adjustments. Upon the final determination of the
Revenues Statement for each Determination Date in accordance with Section 3.1
hereof, the Stock Merger Consideration will be adjusted (each, a "Purchase Price
Adjustment") according to the following:
(a) First Equity Adjustment. If the Surviving Corporation's total
revenues for the 12-month period ended October 6, 2000 equal or exceed
$3,000,000, then the First Equity
-8-
Contingency Amount, less the sum of (i) the number of shares of Parent
Common Stock to be delivered by the Escrow Agent to Parent in payment of
any claims made prior to such date against the Escrow Amount under Section
9.1(a) hereof, (ii) the number of shares of Parent Common Stock to be
delivered to Parent pursuant to Section 3.1(b) above, if any, and (iii) the
number of shares of Parent Common Stock reserved by the Escrow Agent to pay
any pending claim under Section 9.1(a) hereof, each pursuant to the Escrow
Agreement, shall be released from the escrow account and distributed among
the Shareholders in the manner set forth in the Escrow Agreement; provided
that if the resulting amount (the "Indebted Contingency Share Number") is a
negative number, no shares of Parent Common Stock shall be distributed to
the Shareholders.
(b) Second Equity Adjustment. If the Surviving Corporation's total
revenues for the 12-month period ended October 6, 2001 equal or exceed
$3,000,000, then the Second Equity Contingency Amount, less the sum of (i)
the Indebted Contingency Share Number, (ii) the number of shares of Parent
Common Stock to be delivered by the Escrow Agent to Parent in payment of
any claims made after October 6, 2000 against the Escrow Amount under
Section 9.1(a) hereof, (iii) the number of shares of Parent Common Stock
delivered to Parent pursuant to Section 3.1(b) above, if any, and (iv) the
number of shares of Parent Common Stock reserved by the Escrow Agent to pay
any pending claims under Section 9.1 hereof, each pursuant to the Escrow
Agreement, shall be released from the escrow account and distributed among
the Shareholders, in the manner set forth in the Escrow Agreement, provided
that if the resulting amount is a negative number, no shares of Parent
Common Stock shall be distributed to the Shareholders.
3.3. Payments. Upon final determination of each Purchase Price Adjustment
and the First Equity Contingency Amount or the Second Equity Contingency Amount,
as the case may be, payable in accordance with Section 3.2 hereof, if any,
Parent and the Shareholders' Representative shall, within 5 days thereafter,
execute and deliver to the Escrow Agent written instructions to release and
deliver to the Shareholders' Representative certificates representing such
number of shares of Parent Common Stock due to the Shareholders pursuant to this
Section 3 and the Escrow Agreement.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to Parent and Acquisition Sub as follows:
4.1. Organization; Good Standing; Qualification and Power. The Company is a
corporation duly organized, validly existing and in good standing under the Laws
of the State of Arizona, has all requisite corporate power and authority to own,
lease and operate its assets and properties and to carry on its
-9-
business as now being conducted, to enter into this Agreement and the Related
Documents, to perform its obligations hereunder and thereunder and to consummate
the transactions contemplated hereby and thereby, and, except as set forth in
the disclosure letter dated the date of this Agreement (the "Company Disclosure
Letter"), certified by an authorized officer of the Company and delivered
thereby to Parent and Acquisition Sub, is duly qualified and in good standing to
do business in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification necessary, each
of which jurisdictions is set forth in the Company Disclosure Letter. The
Company has delivered to Acquisition Sub true and complete copies of the
Company's Charter and the Company's By-laws, in each case as amended to the date
hereof.
4.2. Equity Investments. The Company has never had, nor does it currently
have, any subsidiaries, nor has it ever owned, nor does it currently own, any
capital stock or other proprietary or equity interest, directly or indirectly,
in any Person.
4.3. Capital Stock. The authorized capital stock of the Company consists of
1,000,000 shares of Company Common Stock, no par value, of which 42 shares are
issued and outstanding; such 42 shares of Company Common Stock being owned of
record and beneficially by the Shareholders in the amounts set forth on Schedule
I. All of such shares were validly issued, fully paid and non-assessable, with
no personal Liability attached to the ownership thereof. Except as set forth in
the Company Disclosure Letter, there are no securities presently outstanding,
and on the Closing Date there will not be any outstanding securities, which are
convertible into, exchangeable for, or carrying the right to acquire, equity
securities of the Company, or subscriptions, warrants, options, calls, puts,
convertible securities, registration or other rights, arrangements or
commitments obligating the Company to issue, sell, register, purchase or redeem
any of its equity securities or any ownership interest or rights therein. Except
as set forth in the Company Disclosure Letter, there are no Contracts,
commitments, arrangements, understandings or restrictions to which the Company,
any Shareholder or any other Person is bound relating to any shares of capital
stock or other securities of the Company, including, without limitation, the
voting or transfer of such capital stock.
4.4. Authority; Noncontravention; Consents. (a) The Company has all the
requisite corporate power and authority to execute and deliver and perform its
obligations under this Agreement and each Related Document to which it is a
party and any and all instruments necessary or appropriate in order to
effectuate fully the terms and conditions of this Agreement and each Related
Document to which it is a party and all related transactions contemplated hereby
and thereby and to perform its obligations hereunder and thereunder; the
execution, delivery and
-10-
performance of this Agreement and each Related Document to which it is a party
and the consummation of the transactions contemplated hereby and thereby have
been duly and validly authorized by all necessary corporate action on the part
of the Company and the Shareholders; and this Agreement and each Related
Document to which it is a party has been duly and validly executed and delivered
by the Company and this Agreement and each Related Document to which it is a
party is the valid and binding obligation of the Company, enforceable against
the Company in accordance with its terms, except as enforceability thereof may
be limited by any applicable bankruptcy, reorganization, insolvency or other
Laws affecting creditors rights generally or by general principles of equity.
(b) Neither the execution, delivery and performance of this Agreement and
each Related Document to which it is a party nor the consummation by the Company
of the transactions contemplated hereby or thereby nor compliance by the Company
with any provision hereof or thereof will (i) conflict with, or result in any
breach or violation of, or cause a default (with or without notice or lapse of
time, or both) under, or give rise to a right of termination, amendment,
cancellation or acceleration of any obligation contained in or the loss of any
material benefit under, or result in the creation of any Encumbrance upon any of
the properties or assets of the Company under any term, condition or provision
of (x) the Company's Charter or the Company's By-laws or (y) except as set forth
in the Company Disclosure Letter, any Contract to which the Company is a party
or by which any of its properties or assets are bound, or (ii) violate any Laws
applicable to the Company or any of its properties.
(c) Except as set forth in the Company Disclosure Letter, no consent,
approval, Order or authorization of, registration, declaration or filing with,
or notification to any Governmental Entity or any third Person is required in
connection with the execution, delivery and performance by the Company of this
Agreement or the Related Documents to which the Company is a party or the
consummation of the transactions contemplated hereby or thereby.
4.5. Financial Statements. The Company has previously delivered to Parent
and Acquisition Sub the unaudited balance sheet of the Company as of June 30,
1997 (the "Latest Company Balance Sheet"; and such date being the "Latest
Company Balance Sheet Date"), and the related statements of income,
stockholders' equity and cash flows for the six-month period then ended (such
financial statements being referred to herein collectively as, the "Company
Financial Statements"). Except as set forth in the Company Disclosure Letter,
the Company Financial Statements (A) are in accordance with the books and
records of the Company which have been maintained in a manner consistent with
historical practices and (B) fairly present the financial condition of the
-11-
Company as at the respective dates indicated and the results of operations,
stockholders' equity and cash flows of the Company for the respective periods
indicated.
4.6. Absence of Undisclosed Liabilities. Except as set forth in the Company
Disclosure Letter, the Company has no Liabilities, except for (i) Liabilities
reflected in the Liabilities section of the Latest Company Balance Sheet, (ii)
Liabilities under Contracts that are set forth in the Company Disclosure Letter
which have arisen in the ordinary course of business (none of which relates to a
breach of contract), and (iii) Liabilities that have arisen since the date of
the Latest Company Balance Sheet in the ordinary course of business (none of
which relates to breach of contract, breach of warranty, tort, infringement,
violation of Law, or any action, suit or Proceeding (including any Liability
under any Environmental, Health and Safety Laws)). There were no loss
contingencies (as such term is used in Statement of Financial Accounting
Standards No. 5 issued by the Financial Accounting Standards Board in March
1975) that were not adequately provided for on the Latest Company Balance Sheet.
The Company has not, either expressly or by operation of law, assumed or
undertaken any Liability of any other Person, including, without limitation, any
obligation for corrective or remedial action relating to Environmental, Health
and Safety Laws.
4.7. Absence of Changes. Since the Latest Company Balance Sheet Date, there
has not been any Material Adverse Change. Since that date, except as set forth
in the Company Disclosure Letter, the Company has been operated only in the
ordinary course, consistent with past practice, and:
(a) no fee, interest, dividend, royalty or any other payment of any
kind has been made by the Company to any Shareholder or any Affiliate of
the Company or any Shareholder;
(b) no party (including the Company) has accelerated, terminated,
modified or canceled any Contract (or series of related Contracts)
involving more than $5,000 to which the Company is a party or by which the
Company is bound and, to the Best Knowledge of the Company, no party
intends to take any such action;
(c) the Company has not experienced any material damage, destruction,
or loss (whether or not covered by insurance) to its property;
(d) there has not been any material action or failure to act by the
Company, or to the Best Knowledge of the Company, any other material
occurrence, event, incident or transaction outside the ordinary course of
business involving the Company;
-12-
(e) the Company has not taken any action that would violate any of the
negative covenants set forth in Section 6.2 of this Agreement; and
(f) there has been no agreement, understanding or authorization,
whether in writing or otherwise, for the Company to take any of the actions
specified in items (a) through (e) above.
4.8. Tax Matters. Except as set forth in the Company Disclosure Letter, the
Company, (a) has timely paid all Taxes required to be paid by it through the
date hereof and (b) has filed or caused to be filed in a timely manner (within
any applicable extension periods) all Tax Returns with appropriate Governmental
Entities in all jurisdictions in which the Tax Returns are required to be filed,
and all such Tax Returns are true and complete. The Company is not, nor has it
ever been, included in any consolidated or combined Tax return for Federal,
state or local Tax purposes or is it a member of an affiliated group within the
meaning of Section 1504 of the Code. All Taxes, including those shown to be due
on each of the Tax Returns, have been timely paid in full. Except as set forth
in the Company Disclosure Letter, no Tax liens exist or have been filed and the
Company has not been notified by the Internal Revenue Service or any other
taxing authority that any issues have been raised (and are currently pending) by
the Internal Revenue Service or any other taxing authority in connection with
any Tax Return, and no waivers of statutes of limitation have been given or
requested with respect to the Company. There are no pending or proposed Tax
audits of any Tax Returns and no unresolved questions or claims concerning the
Company's Tax Liability exists. No unresolved deficiencies or additions to Taxes
have been proposed, asserted or assessed against the Company or any member of
any affiliated or combined group of which the Company was or is a member. The
Company has not incurred any Tax Liability since the Latest Company Balance
Sheet Date, except for Taxes incurred in the ordinary course of business. No
claim has ever been made by any Taxing authority in a jurisdiction in which the
Company does not file Tax Returns that the Company is or may be subject to
taxation by that jurisdiction. The Company has not made an election to be
treated as a "consenting corporation" under Section 341(f) of the Code and the
Company is not, nor has it ever been, a "personal holding company" within the
meaning of Section 542 of the Code. The Company and each of its predecessors
have complied in all material respects with all applicable Laws relating to the
payment and withholding of Taxes and has withheld and paid over all amounts
required by Law to be withheld and paid from the wages or salaries of employees,
and the Company is not liable for any Taxes for failure to comply with such
Laws. The Company neither is nor has it ever been a party to any Tax sharing
agreement. The Company has not agreed to nor is it required to make any
adjustments pursuant to Section 481 of the Code, and the Internal Revenue
Service has not
-13-
proposed any such adjustments or changes in the Company's accounting method.
There is no Contract covering any Person that individually or collectively
could, as a result of the transactions contemplated hereby, or otherwise, give
rise to the payment of any amount being non-deductible by the Company by reason
of Section 280(G) of the Code.
4.9. Title to Assets, Properties and Rights and Related Matters. The
Company has good and marketable title to all assets, properties and interests in
properties, real, personal or mixed, reflected on the Latest Company Balance
Sheet or acquired after the Latest Company Balance Sheet Date (except inventory
or other property sold or otherwise disposed of since the Latest Company Balance
Sheet Date in the ordinary course of business and accounts receivable and notes
receivable paid in full subsequent to the Latest Company Balance Sheet Date),
free and clear of all Encumbrances, of any kind or character, except for those
Encumbrances set forth in the Company Disclosure Letter and Permitted
Encumbrances. There does not exist any condition which materially interferes
with the economic value or use of any such assets. All material tangible
personal property is located on the premises of the Company.
4.10. Real Property-Owned or Leased. The Company does not own or lease any
real property.
4.11. Intellectual Property. (a) The Company has never owned or used in the
conduct of the Subject Business, nor does it currently own or use in the conduct
of the Subject Business, Intellectual Property Rights; and
(b) the Company has not received from any third party in the past five
years any notice, charge, claim or other assertion that the Company is
infringing any Intellectual Property Right of any third party or committed any
acts of unfair competition, and no such claim is impliedly threatened by an
offer to license from a third party under a claim of use.
4.12. Agreements, No Defaults, Etc. The Company Disclosure Letter contains
a true and complete list and brief description of all material written or oral
contracts, agreements and other instruments to which the Company is a party.
Except as set forth in the Company Disclosure Letter, the Company is not a party
to any:
(a) Contract for the employment of any officer, individual employee or
other Person on a full-time, part-time, consulting or other basis or
agreement with any Affiliates;
(b) Contract relating to the borrowing of money or to the mortgaging,
pledging or otherwise placing an Encumbrance on any asset or group of
assets of the Company;
-14-
(c) Contract relating to any guarantee of any obligation for borrowed
money or otherwise;
(d) Contract with respect to the lending or investing of funds;
(e) Contract or indemnification with respect to any form of intangible
property, including any Intellectual Property Rights or confidential
information;
(f) Contract or group of related Contracts with the same party for the
purchase or sale of products or services under which the undelivered
balance of such products and services has a selling price in excess of
$15,000;
(g) Contract that prohibits it from freely engaging in business
anywhere in the world;
(h) other Contract (x) that is not terminable by either party without
penalty upon advance notice of 30 days or less and involves aggregate
consideration in excess of $5,000 or (y) that involves aggregate
consideration in excess of $25,000; or
(i) other Contract material to the Subject Business.
Except as set forth in the Company Disclosure Letter, there are no vehicles,
boats, aircraft, apartments or other residential or recreational properties or
facilities owned or operated by the Company for executive, administrative or
sales purposes or any social club memberships owned or paid for by it. All
Contracts listed in the Company Disclosure Letter are in full force and effect,
constitute legal, valid and binding obligations of the respective parties
thereto, and are enforceable in accordance with their respective terms. Except
as set forth in the Company Disclosure Letter, the Company has in all material
respects performed all the obligations required to be performed by it to date
and is not in default or alleged to be in default under any Contract, and there
exists no event, condition or occurrence which, after notice or lapse of time,
or both, would constitute such a default by the Company of any of the foregoing.
The Company has furnished to Parent and Acquisition Sub true and complete copies
of all documents listed in the Company Disclosure Letter or complete
descriptions of all material terms of any oral Contracts listed in the Company
Disclosure Letter.
4.13. Litigation, Etc. Except as set forth in the Company Disclosure
Letter, there are no (i) Proceedings pending or, to the Best Knowledge of the
Company, threatened against the Company, whether at law or in equity, or before
or by any Governmental Entity or arbitrator, nor does there exist any basis
-15-
therefore or (ii) Orders of any Governmental Entity or arbitrator against the
Company. The Company has delivered to Acquisition Sub all material documents and
correspondence relating to such matters referred to in the Company Disclosure
Letter.
4.14. Compliance; Governmental Authorizations. Except as set forth in the
Company Disclosure Letter, the Subject Business has not and is not being
conducted in violation in any material respect of any Law, Order or Permit,
including, without limitation, Environmental, Health and Safety Laws. Except as
set forth in the Company Disclosure Letter, no investigation or review by any
Governmental Entity with respect to the Company is pending or, to the Best
Knowledge of the Company, threatened, nor has any Governmental Entity notified
the Company of its intention to conduct the same. The Company has all Permits
necessary for the conduct of its business, including those required under any
Environmental, Health and Safety Laws, such Permits are in full force and
effect, no violations are or have been recorded in respect of any thereof and no
Proceeding is pending or, to the Best Knowledge of the Company, threatened to
revoke or limit any thereof. The Company Disclosure Letter contains a true and
complete list of all material Permits under which the Company is operating or
bound, and the Company has furnished to Acquisition Sub true and complete copies
thereof.
4.15. Insurance. The Company Disclosure Letter lists and briefly describes
each insurance policy maintained by the Company with respect to the properties,
assets and business of the Company, and any pending claims thereunder. The
Company is insured against all risks usually insured against by Persons
conducting similar businesses and operating similar properties in the localities
where the Subject Business is conducted. All of such insurance policies are in
full force and effect, and the Company is not in default in any material respect
with respect to its obligations under any of such insurance policies and has not
received any notification of cancellation of any of such insurance policies and
has no claim outstanding which could be expected to cause a material increase in
the insurance rates. No facts or circumstances exist that would relieve the
insurer under any such policy of its obligation to satisfy in full any claim of
the Company thereunder. The Company has not received any notice that (i) any of
such policies has been or will be canceled or terminated or will not be renewed
on substantially the same terms as are now in effect or (ii) the premium on any
of such policies will be materially increased on the renewal thereof.
4.16. Employees; ERISA Compliance. The Company has never had, nor does it
currently have, any employees. The Company has never had or participated in, nor
does it currently have or participate in, any Employee Plan.
4.17. Environmental Matters. Neither the Company, the Subject Business nor
any of their past owned or leased properties
-16-
or operations is subject to or the subject of, any Proceeding, Order, Settlement
or other Contract or investigation arising under any Environmental Health and
Safety Laws. The Company has never handled, transported or disposed of, or
allowed or arranged for any third party to handle, transport or dispose of any
Hazardous Materials.
4.18. Brokers. None of the Company or any of its officers, directors,
stockholders or employees (or any Affiliate of the foregoing) have employed any
broker or finder or incurred any Liability for any brokerage fees, commissions
or finders' fees in connection with the transactions contemplated hereby.
4.19. Accounts and Notes Receivable. Except as set forth in the Company
Disclosure Letter, all the accounts receivable and notes receivable owing to the
Company as of the date hereof constitute, and as of the Closing will constitute,
valid and enforceable claims arising from bona fide transactions in the ordinary
course of business, and there are no known or asserted claims, refusals to pay
or other rights of set-off against any thereof. Except as set forth in the
Company Disclosure Letter, as of the date hereof, there is (i) no account debtor
or note debtor delinquent in its payment by more than 90 days, (ii) no account
debtor or note debtor that has refused or, to the Best Knowledge of the Company,
threatened to refuse to pay its obligations for any reason, (iii) to the Best
Knowledge of the Company, no account debtor or note debtor that is insolvent or
bankrupt and (iv) no account receivable or note receivable pledged to any third
party by the Company.
4.20. Accounts and Notes Payable. Except as set forth in the Company
Disclosure Letter, all accounts payable and notes payable by the Company to
third parties as of the date hereof arose, and as of the Closing will have
arisen, in the ordinary course of business, and, except as set forth in the
Company Disclosure Letter, there is no such account payable or note payable
delinquent in its payment, except those contested in good faith and already
disclosed in the Company Disclosure Letter.
4.21. Bank Accounts; Powers of Attorney. The Company Disclosure Letter sets
forth a true and complete list of (i) all bank accounts and safe deposit boxes
of the Company and all persons who are signatories thereunder or who have access
thereto and (ii) the names of all persons, firms, associations, corporations or
business organizations holding general or special powers of attorney from the
Company and a summary of the terms thereof.
4.22. Related Transactions. Except as set forth in the Company Disclosure
Letter and except for the Practice Management Agreements, no current or former
Affiliate of the Company is now, or has been during the last five years, (i) a
party to any transaction or Contract with the Company or (ii) the
-17-
direct or indirect owner of an interest in any Person which is a present or
potential competitor or customer of the Company, nor does any such person
receive income from any source other than the Company which relates to the
business of, or should properly accrue to, the Company.
4.23. Burdensome Restrictions. The Company is not obligated under any
Contract or agreement or subject to any restriction set forth in the Company's
Charter or the Company's By-laws or subject to any other corporate restriction
which presently has a Material Adverse Effect, or in the future, may have a
Material Adverse Effect on the Subject Business.
4.24. Disclosure. To the Best Knowledge of the Company, neither this
Agreement, any of the schedules, attachments or exhibits hereto, nor any other
written material delivered to Parent or Acquisition Sub or any of their
respective directors, officers, employees, representatives or agents contains
any untrue statement of a material fact or omits a material fact necessary to
make the statements contained herein or therein, taken as a whole, in light of
the circumstances in which they were made, not misleading. There is no fact that
has not been disclosed to the parties referred to above of which the Company or
any of the officers or directors of the Company is aware and which constitutes
or could reasonably be anticipated to result in a Material Adverse Change.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF PARENT AND ACQUISITION SUB.
Parent and Acquisition Sub represent and warrant to the Company as follows:
5.1. Organization; Good Standing; Qualification and Power. Each of Parent
and Acquisition Sub is a corporation duly organized, validly existing and in
good standing under the Laws of the state of its incorporation, has all
requisite corporate power and authority to own, lease and operate its properties
and to carry on its business as now being conducted, to enter into this
Agreement and the Related Documents to which it is a party, to perform its
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby, and, except as set forth in the disclosure
letter dated the date of this Agreement (the "Parent Disclosure Letter")
certified by an authorized officer of Parent and Acquisition Sub and delivered
thereby to the Company, is duly qualified and in good standing to do business in
each jurisdiction in which the nature of its business or the ownership or
leasing of its properties makes such qualification necessary, each of which
jurisdictions is set forth in the Parent Disclosure Letter. Parent has delivered
to the Company true and complete copies of Parent's Charter and Parent's
By-laws, in each case as amended to the date hereof.
5.2. Authority. Each of Parent and Acquisition Sub has all requisite power
and authority to enter into this
-18-
Agreement and the Related Documents to which it is a party, to perform its
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby; the execution, delivery and performance by
Parent and Acquisition Sub of this Agreement and the Related Documents to which
they are a party and the consummation of the transactions contemplated hereby
and thereby have been duly authorized by all necessary action on the part of
Parent or Acquisition Sub, as the case may be; and this Agreement and the
Related Documents to which Parent and Acquisition Sub are a party have been duly
executed and delivered by Parent or Acquisition Sub, as the case may be, and
constitute the valid and legally binding obligations of such party, enforceable
in accordance with their respective terms and conditions, except as
enforceability thereof may be limited by any applicable bankruptcy,
reorganization, insolvency or other Laws affecting creditors' rights generally
or by general principles of equity.
5.3. Noncontravention; Consents. (a) Neither the execution and delivery of
this Agreement and the Related Documents to which Parent or Acquisition Sub is a
party nor the consummation of the transactions contemplated hereby or thereby by
Parent or Acquisition Sub shall (i) violate any Law, the result of which would
prevent the consummation by Parent or Acquisition Sub of the transactions
contemplated hereby or (ii) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
material Contract to which either Parent or Acquisition Sub is a party or by
which Parent or Acquisition Sub is bound or to which any of their respective
properties is subject, the result of which would prevent the consummation by
Parent or Acquisition Sub of the transactions contemplated hereby.
(b) Except as contemplated by this Agreement or any Related Document, and
except as set forth in the Parent Disclosure Letter, no material permit,
authorization, consent or approval of or by, or any material notification of or
filing with, any Person (governmental or private) is required in connection with
the execution, delivery and performance by Parent and Acquisition Sub of this
Agreement and the Related Documents to which they are a party or the
consummation by such parties of the transactions contemplated hereby or thereby.
5.4. Capital Stock. The authorized capital stock of Parent consists of
25,000,000 shares of common stock, of which 10,048,482 shares are issued and
outstanding, and 9,233,049 shares of preferred stock, of which (i) 999,999
shares of Series A Convertible Preferred Stock, (ii) 2,000,001 shares of Series
B Convertible Preferred Stock, (iii) 254,999 shares of Series C Convertible
Preferred Stock, (iv) 188,072 shares of Series D Convertible Preferred Stock,
and (v) 741,669 shares of Series E Convertible Preferred Stock are issued and
outstanding. Each of
-19-
the outstanding shares of capital stock has been duly and validly authorized and
issued, is fully paid for and non-assessable, and was issued in compliance with
all applicable Federal and state securities laws.
5.5. Financial Statements. Parent has previously delivered to the Company
the following financial statements (collectively, the "Parent Financial
Statements"):
(a) the unaudited balance sheet of Parent as of December 31, 1996 and
the related statements of income, stockholders' equity, cash flows and
supplemental data for the fiscal period then ended; and
(b) the unaudited balance sheet of Parent as of June 30, 1997 (the
"Latest Parent Balance Sheet" and such date being the "Latest Parent
Balance Sheet Date"), and the related statement of income for the
three-month period then ended.
Except as set forth in the Parent Disclosure Letter, the Parent Financial
Statements (i) are in accordance with the books and records of Parent which have
been maintained in a manner consistent with historical practices, (ii) fairly
present the financial condition of Parent as at the respective dates indicated
and the results of operations, stockholders' equity and cash flows of Parent for
the respective periods indicated, and (iii) have been prepared in accordance
with generally accepted accounting principles consistently applied throughout
the periods covered thereby except for normal year-end adjustments (none of
which will be material) and for the absence of footnotes.
5.6. Absence of Undisclosed Liabilities. Except as set forth in the Parent
Disclosure Letter, Parent has no material Liabilities, except for (i)
Liabilities reflected in the Liabilities section of the Latest Parent Balance
Sheet, (ii) Liabilities under Contracts that are set forth in the Parent
Disclosure Letter which have arisen in the ordinary course of business (none of
which relates to a breach of contract), and (iii) Liabilities that have arisen
since the date of the Latest Parent Balance Sheet in the ordinary course of
business (none of which relates to breach of contract, breach of warranty, tort,
infringement, violation of Law, or any action, suit or Proceeding (including any
Liability under any Environmental, Health and Safety Laws)). There were no loss
contingencies (as such term is used in Statement of Financial Accounting
Standards No. 5 issued by the Financial Accounting Standards Board in March
1975) that were not adequately provided for on the Latest Parent Balance Sheet.
Except as set forth in the Parent Disclosure Letter, Parent has not, either
expressly or by operation of law, assumed or undertaken any Liability of any
other Person, including, without limitation, any obligation for corrective or
remedial action relating to Environmental, Health and Safety Laws.
-20-
5.7. Absence of Changes. Since the Latest Parent Balance Sheet Date, there
has not been any Material Adverse Change. Since that date, except as set forth
in the Parent Disclosure Letter, Parent has operated its business in the
ordinary course, consistent with past practice, and:
(a) no party (including Parent) has accelerated, terminated, modified
or canceled any Contract (or series of related Contracts) involving more
than $5,000 to which Parent is a party or by which Parent is bound and, to
the Best Knowledge of Parent, no party intends to take any such action;
(b) Parent has not experienced any material damage, destruction, or
loss (whether or not covered by insurance) to its property;
(c) there has not been any material action or failure to act by
Parent, or to the Best Knowledge of Parent, any other material occurrence,
event, incident or transaction outside the ordinary course of business
involving Parent;
(d) there has been no agreement, understanding or authorization,
whether in writing or otherwise, for Parent to take any of the actions
specified in items (a) through (c) above.
5.8. Tax Matters. Except as set forth in the Parent Disclosure Letter,
Parent, (a) has timely paid all Taxes required to be paid by it through the date
hereof and (b) has filed or caused to be filed in a timely manner (within any
applicable extension periods) all Tax Returns with appropriate Governmental
Entities in all jurisdictions in which the Tax Returns are required to be filed,
and all such Tax Returns are true and complete. Parent is not, nor has it ever
been, included in any consolidated or combined Tax return for Federal, state or
local Tax purposes or is it a member of an affiliated group within the meaning
of Section 1504 of the Code. All Taxes, including those shown to be due on each
of the Tax Returns, have been timely paid in full. Except as set forth in the
Parent Disclosure Letter, no Tax liens exist or have been filed and Parent has
not been notified by the Internal Revenue Service or any other taxing authority
that any issues have been raised (and are currently pending) by the Internal
Revenue Service or any other taxing authority in connection with any Tax Return,
and no waivers of statutes of limitation have been given or requested with
respect to Parent. There are no pending Tax audits of any Tax Returns. No
unresolved deficiencies or additions to Taxes have been proposed, asserted or
assessed against Parent or any member of any affiliated or combined group of
which Parent was or is a member. Parent has made full and adequate provision (i)
on the Latest Parent Balance Sheet for all Taxes payable by it for all
-21-
periods prior to the date thereof, and (ii) on its books for all Taxes payable
by it for all periods beginning on or after such date. Parent has not incurred
any Tax Liability since the Latest Parent Balance Sheet Date, except for Taxes
incurred in the ordinary course of business. No claim has ever been made by any
Taxing authority in a jurisdiction in which Parent does not file Tax Returns
that the Company is or may be subject to taxation in that jurisdiction. Parent
has not made an election to be treated as a "consenting corporation" under
Section 341(f) of the Code and Parent is not, nor has it ever been, a "personal
holding company" within the meaning of Section 542 of the Code. Parent and each
of its predecessors have complied in all material respects with all applicable
Laws relating to the payment and withholding of Taxes and has withheld and paid
over all amounts required by Law to be withheld and paid from the wages or
salaries of employees, and Parent is not liable for any Taxes for failure to
comply with such Laws. Parent neither is nor has it ever been a party to any Tax
sharing agreement. Parent has not agreed to nor is it required to make any
adjustments pursuant to Section 481 of the Code, and the Internal Revenue
Service has not proposed any such adjustments or changes in Parent's accounting
method. There is no Contract covering any Person that individually or
collectively could, as a result of the transactions contemplated hereby, or
otherwise, give rise to the payment of any amount being non-deductible by Parent
by reason of Section 280(G) of the Code.
5.9. Title to Assets, Properties and Rights and Related Matters. Parent has
good title to all assets, properties and interests in properties, real, personal
or mixed, reflected on the Latest Parent Balance Sheet or acquired after the
Latest Parent Balance Sheet Date (except inventory or other property sold or
otherwise disposed of since the Latest Parent Balance Sheet Date in the ordinary
course of business and accounts receivable and notes receivable paid in full
subsequent to the Latest Parent Balance Sheet Date), free and clear of all
Encumbrances, of any kind or character, except for those Encumbrances set forth
in the Parent Disclosure Letter and Permitted Encumbrances. There does not exist
any condition which materially interferes with the economic value or use of any
such assets.
5.10. Intellectual Property. (a) Except as set forth on the Parent
Disclosure Letter, Parent has never owned or used in the conduct of its
business, nor does it currently own or use in the conduct of its business, any
Intellectual Property Rights; and
(b) Parent has not received from any third party in the past five years any
notice, charge, claim or other assertion that Parent is infringing any
Intellectual Property Right of any third party or committed any acts of unfair
competition, and no
-22-
such claim is impliedly threatened by an offer to license from a third party
under a claim of use.
5.11. Litigation, Etc. Except as set forth in the Parent Disclosure Letter,
there are no (i) Proceedings pending or, to the Best Knowledge of Parent,
threatened against Parent, whether at law or in equity, or before or by any
Governmental Entity or arbitrator or (ii) Orders of any Governmental Entity or
arbitrator against Parent. Parent has delivered to the Company all material
documents and correspondence relating to such matters referred to in the Parent
Disclosure Letter.
5.12. Compliance; Governmental Authorizations. Except as set forth in the
Parent Disclosure Letter, Parent's business has not and is not being conducted
in violation in any material respect of any Law, Order or Permit, including,
without limitation, Environmental, Health and Safety Laws. No investigation or
review by any Governmental Entity with respect to Parent is pending or, to the
Best Knowledge of Parent, threatened, nor has any Governmental Entity notified
Parent of its intention to conduct the same. Parent has all Permits necessary
for the conduct of its business, including those required under any
Environmental, Health and Safety Laws, such Permits are in full force and
effect, no violations are or have been recorded in respect of any thereof and no
Proceeding is pending or, to the Best Knowledge of Parent, threatened to revoke
or limit any thereof.
5.13. Brokers. None of Parent, Acquisition Sub nor any of their respective
officers, directors, stockholders or employees (or any Affiliate of any of the
foregoing) has employed any broker or finder or incurred any Liability for any
brokerage fees, commissions or finders' fees in connection with the transactions
contemplated hereby.
5.14. Disclosure. To the Best Knowledge of Parent, neither this Agreement,
any of the schedules, attachments or exhibits hereto, nor any other written
material delivered to the Company or any of its directors, officers, employees,
representatives or agents contains any untrue statement of a material fact or
omits a material fact necessary to make the statements contained herein or
therein, taken as a whole, in light of the circumstances in which they were
made, not misleading. There is no fact that has not been disclosed to the
parties referred to above of which Parent, Acquisition Sub or any of the
officers or directors of Parent or Acquisition Sub is aware and which
constitutes or could reasonably be anticipated to result in a Material Adverse
Change.
-23-
SECTION 6. CONDUCT AND TRANSACTIONS PRIOR TO THE CLOSING; ADDITIONAL
PRE-CLOSING AGREEMENTS.
6.1. Affirmative Covenants of the Company. From and after the date of this
Agreement until the Closing or the earlier termination of this Agreement
pursuant to Section 10.1 (the "Transition Period"), except as otherwise
consented to in writing by Parent and Acquisition Sub, the Company shall:
(a) conduct the operations of the Company (including the Subject
Business) according to the ordinary and usual course of business consistent
with past custom and practice (including the collection of receivables and
the payment of payables) and use best efforts to preserve intact its
business organization, keep available the services of officers and
employees, and maintain satisfactory relationships with customers and
others having business relationships with them;
(b) maintain the assets of the Company in customary repair, order and
condition, maintain insurance reasonably comparable to that in effect on
the Latest Company Balance Sheet Date, replace in accordance with past
practice inoperable, worn out or obsolete assets with modern assets of
comparable quality and, in the event of a casualty, loss or damage to any
of such assets or properties prior to the Closing Date for which the
Company is insured or the condemnation of any assets or properties, either
repair or replace such assets or property or, if Parent and Acquisition Sub
agree, cause the Company to retain such insurance or condemnation proceeds;
(c) promptly inform Parent and Acquisition Sub in writing of any
material variances from the representations and warranties contained in
Section 4; and
(d) permit representatives of Parent and Acquisition Sub to have full
access to the Company's books, records, property, facilities, customers,
suppliers, sales representatives, consultants, key employees and
independent accountants in connection with Parent's and Acquisition Sub's
due diligence review of the Company (it being understood that such
investigation shall in no way affect or otherwise obviate or diminish any
representations or warranties of the Company, or conditions to the
obligations of Parent or Acquisition Sub, in each case as set forth
herein).
6.2. Negative Covenants of the Company. During the Transition Period,
without the prior written consent of Parent and Acquisition Sub, except as
expressly contemplated by this Agreement or the Related Documents, the Company
shall not:
-24-
(a) sell, lease, transfer, assign or distribute any of the assets of
the Company, tangible or intangible;
(b) enter into any Contract (or series of related Contracts) other
than in the ordinary course of business;
(c) delay or postpone the payment of accounts payable and other
obligations and Liabilities or accelerate the collection of accounts
receivable, other than in the ordinary course of business consistent with
past custom and practice;
(d) enter into any employment or consulting Contract or collective
bargaining agreement, written or oral, or modify the terms of any existing
such Contract or agreement;
(e) grant any increase in the base compensation of any of the officers
or employees of the Company other than in the ordinary course of business
consistent with past custom and practice;
(f) adopt, amend, modify or terminate any bonus, profit-sharing,
incentive, severance or other plan, Contract or commitment for the benefit
of any of the officers, consultants or employees of the Company;
(g) other than as contemplated by this Agreement or any Related
Document, enter into any transaction with any of the officers, employees or
Affiliates of the Company (or any directors, officers or employees of such
Affiliate), other than ordinary course employment arrangements entered into
in accordance with past custom or practice;
(h) in any manner take or cause to be taken any action which is
designed, intended or might reasonably be anticipated to have the effect of
discouraging customers, employees, lessors and other associates of the
Company from maintaining the same business relationships with the Company
after the date of this Agreement as were maintained with the Company prior
to the date of this Agreement;
(i) issue or sell any shares of any capital stock or issue or sell any
securities convertible into, exercisable or exchangeable for or options or
warrants to purchase or rights to subscribe for, any shares of any of its
capital stock, or enter into any agreement, contract or other commitment to
do any of the foregoing;
(j) change in any material respect the accounting methods or practices
currently used;
-25-
(k) amend or modify in any way its Charter, Bylaws or similar
corporate and organizational documents; or
(l) intentionally take any action which would require disclosure under
Section 6.1(c).
6.3. Consents. Each party shall use its reasonable best efforts, and the
other parties shall cooperate with such efforts, to obtain any consents and
approvals of, or effect the notification of or filing with, each Person or
Governmental Entity whose consent or approval is required in order to permit the
consummation of the transactions contemplated hereby.
6.4. Efforts to Consummate. Subject to the terms and conditions herein
provided, the parties shall do or cause to be done all such reasonable acts and
things as may be necessary, proper or advisable, consistent with all applicable
Laws and regulations, to consummate and make effective the transactions
contemplated hereby as soon as reasonably practicable.
6.5. Notice of Prospective Breach. Each party shall immediately notify the
other parties in writing upon the occurrence, or failure to occur, of any event,
which occurrence or failure to occur would be reasonably likely to cause (i) any
representation or warranty contained in this Agreement to be untrue or
inaccurate in any material respect at any time from the date of this Agreement
to the Closing as if such representation and warranty were made at such time or
(ii) any material failure of any party hereto or any officer, director, employee
or agent thereof, to comply with or satisfy any covenant, condition or agreement
to be complied with or satisfied by it under this Agreement.
6.6. Public Announcements. Each party agrees that, except (i) as otherwise
required by Law or public disclosure obligations of any party and (ii) for
disclosure to its respective directors, officers, employees, financial advisors,
potential financing sources, legal counsel, independent certified public
accountants or other agents, advisors or representatives on a need-to-know basis
and with whom such party has a confidential relationship, it will not issue any
reports, statements or releases, in each case pertaining to this Agreement or
the transactions contemplated hereby, without the prior written consent of the
Company or Parent and Acquisition Sub, as the case may be, which consent shall
not be unreasonably withheld or delayed.
6.7. Negotiation with Others; Disposition and Voting of Securities. (a)
During the Transition Period, the Company shall deal exclusively with Parent and
Acquisition Sub regarding the acquisition of or investment in the Company,
whether by way of merger, purchase of capital stock, purchase of assets or
otherwise (a "Potential Transaction") and, without the prior
-26-
written consent of Parent or Acquisition Sub, the Company shall not directly or
indirectly, (i) take any action, solicit, initiate or undertake discussions with
or engage in negotiations with any Person (whether such negotiations are
initiated by the Company or otherwise), other than Parent or Acquisition Sub or
a party designated by Parent or Acquisition Sub, relating to a Potential
Transaction, (ii) provide information or documentation with respect to the
Company or the Subject Business to any Person, other than Parent and Acquisition
Sub or a party designated by Parent or Acquisition Sub, relating to a Potential
Transaction or (iii) enter into an agreement with any Person, other than Parent
or Acquisition Sub, providing for any Potential Transaction. If the Company
receives an unsolicited inquiry, offer or proposal relating to any of the above,
the Company shall immediately notify Parent and Acquisition Sub thereof. The
Company represents to Parent and Acquisition Sub that it is not bound to
negotiate a Potential Transaction with any other Person and that its execution
of this Agreement does not violate any agreement to which it is bound or to
which any of its assets are subject.
(b) The parties recognize and acknowledge that a breach by the Company of
this Section 6.7 will cause irreparable and material loss and damage to Parent
and Acquisition Sub as to which it will not have an adequate remedy at law or in
damages. Accordingly, each party acknowledges and agrees that the issuance of an
injunction or other equitable remedy is an appropriate remedy for any such
breach.
6.8. Shareholders' Representative. The Company hereby constitutes and
appoints Xxx Xxxxxx, M.D., as agent (the "Shareholders' Representative") for the
Shareholders, with full power and authority, except as otherwise expressly
provided in this Agreement, in the name of and for and on behalf of the
Shareholders, to take all action required or permitted under this Agreement
(including, without limitation, the giving and receiving of all accountings,
reports, notices, waivers and consents). In the event of the death, physical or
mental incapacity or resignation of Xxx Zoltan, M.D. or any successor
Shareholders' Representative, the Shareholders shall promptly appoint a
substitute and shall advise Parent and Acquisition Sub thereof. The authority
conferred under this Section 6.8 is an agency coupled with an interest and all
authority conferred hereby is irrevocable and not subject to termination by the
Shareholders or by operation of law, whether by the death or incapacity of any
Shareholder, the termination of any trust or estate or the occurrence of any
other event. If any Shareholder should die or become incapacitated, if any trust
or estate should terminate or if any other such event should occur, any action
taken by the Shareholders' Representative pursuant to this Section 6.8 shall be
as valid as if such death or incapacity, termination or other event had not
occurred, regardless of whether or not the Shareholders' Representative, Parent
or
-27-
Acquisition Sub shall have received notice of such death, incapacity,
termination or other event.
SECTION 7. CONDITIONS.
7.1. Conditions to Each Party's Obligations to Effect the Merger. The
respective obligation of each party to effect the Merger is subject to the
satisfaction prior to the Closing Date of the following conditions unless waived
(to the extent such conditions can be waived) by Parent and Acquisition Sub or
the Company, as applicable:
(a) Approvals. All authorizations, consents, Orders or approvals of,
or declarations or filings with, or expiration of waiting periods imposed
by, any Governmental Entity necessary for the consummation of the
transactions contemplated hereby shall have been obtained or made.
(b) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other Order issued by any court or
Governmental Entity of competent jurisdiction nor other legal restraint or
prohibition preventing the consummation of the transactions contemplated
hereby shall be in effect.
(c) Statutes. No action shall have been taken or threatened, and no
statute, rule, regulation or Order shall have been enacted, promulgated or
issued or deemed applicable to the transactions contemplated hereby by any
Governmental Entity that would (i) make the consummation of the
transactions contemplated hereby illegal or substantially delay the
consummation of any material aspect of the transactions contemplated
hereby, (ii) compel the Company, the Surviving Corporation or Parent to
dispose or hold separate all or a material portion of the business or
assets of the Company, the Surviving Corporation or Parent as a result of
the consummation of the transactions contemplated hereby or (iii) render
any party unable to consummate the transactions contemplated hereby.
7.2. Conditions to Obligations of Parent and Acquisition Sub. The
obligations of Parent and Acquisition Sub to consummate the Merger and the
related transactions contemplated hereby are subject to the satisfaction of the
following conditions unless waived (to the extent such conditions can be waived)
by Parent and Acquisition Sub:
(a) Accuracy of Representations and Warranties. All representations
and warranties made by the Company in this Agreement and the Related
Documents shall be true and correct in all material respects (except for
such representations and warranties which are qualified by their terms by a
reference to materiality, which representations
-28-
and warranties as so qualified shall be true in all respects) at and as of
the Effective Time with the same effect as if such representations and
warranties had been made at and as of the Effective Time, and Parent and
Acquisition Sub shall have received a certificate signed by the Chief
Executive Officer of the Company to that effect.
(b) Performance of Obligations of the Company. The Company shall have
performed in all material respects all obligations and covenants required
to be performed by the Company under this Agreement and the Related
Documents as of the Effective Time, and Parent and Acquisition Sub shall
have received a certificate signed by the Chief Executive Officer of the
Company to that effect.
(c) Authorization. All action necessary to authorize the execution,
delivery and performance of this Agreement and the Related Documents by the
Company and the consummation of the transactions contemplated hereby and
thereby, including, without limitation, the requisite shareholder
approvals, shall have been duly and validly taken by the Company, and the
Company shall have full power and right to consummate the transactions
contemplated hereby and thereby on the terms provided herein.
(d) Opinion of the Company's Counsel. Parent and Acquisition Sub shall
have received an opinion of Xxxxxxxxx & Xxxxxxx, P.A., counsel for the
Company, dated the Closing Date, in substantially the form of Exhibit C
attached hereto.
(e) Consents and Approvals. Parent and Acquisition Sub shall have
received duly executed copies of all consents and approvals in form and
substance satisfactory to Parent and Acquisition Sub and their counsel,
that are (i) required for consummation of the transactions contemplated by
this Agreement and the Related Documents or (ii) that are required in order
to prevent a breach of or a default under or a termination of any Contract
to which the Company is a party or to which any portion of property of the
Company is subject.
(f) Government Consents, Authorizations, Etc. All consents,
authorizations, Orders or approvals of, and filings or registrations with,
any Governmental Entity which are required for or in connection with the
execution and delivery by the Company of this Agreement and the Related
Documents and the consummation by the Company of the transactions
contemplated hereby and thereby shall have been obtained or made.
(g) Corporate Resolutions. Parent and Acquisition Sub shall have
received certified copies of the
-29-
resolutions of the Company's board of directors and the requisite
Shareholders (the "Affirmative Shareholders"), approving this Agreement,
the Merger, all other agreements and documents contemplated hereby and the
consummation of the transactions contemplated hereby.
(h) Absence of Material Adverse Change. Since the Latest Company
Balance Sheet Date, there shall have been no Material Adverse Change.
(i) Officer's Certificate. The Company shall have delivered an
Officer's Certificate dated as of the Closing Date to Parent and
Acquisition Sub certifying (i) that attached thereto is a true and complete
copy of the Company's Charter and all amendments thereto; (ii) that
attached thereto is a true and complete copy of the Company's By-laws as in
effect on the date of such certification; and (iii) as to the incumbency
and genuineness of the signature of each officer of the Company executing
this Agreement or any of the other documents contemplated hereby.
(j) Restated Management Agreement. Each of the Affirmative
Shareholders shall have executed and delivered to Parent and the Surviving
Corporation an amended and restated Practice Management Agreement, in
substantially the form attached hereto as Exhibit D (the "Restated
Management Agreement"), which agreement shall, among other things, (i)
change the management fee payable to the Surviving Corporation thereunder
from eight percent (8%) to cost plus five percent (5%), (ii) grant Parent a
right of first refusal in the event such Shareholder decides to join a
practice management organization and (iii) permit such Shareholder party
thereto to participate in any group purchasing contract or program
sponsored by Parent and derive savings therefrom.
(k) Restricted Stock Agreement. Each of the Affirmative Shareholders
shall have executed and delivered to Parent a Restricted Stock Agreement.
(l) Escrow Agreement. Parent, the Shareholders' Representative and the
Escrow Agent shall have entered into the Escrow Agreement in form and
substance reasonably satisfactory to Parent, Acquisition Sub and their
counsel, pursuant to which certificates evidencing shares of Parent Common
Stock shall be delivered into an escrow account to secure certain of the
obligations under Sections 3 and 9.1(a) hereof.
(m) Company's Expenses. The Company shall have delivered to
Acquisition Sub a correct and complete schedule of all Company's Expenses
incurred by or on behalf of the Company through the Effective Time, and
Acquisition Sub
-30-
shall have received a certificate signed by the Chief Executive Officer of
the Company certifying as to the accuracy thereof.
(n) Due Diligence. Parent and Acquisition Sub shall be satisfied in
all respects with the results of their business, legal, environmental and
accounting due diligence investigation and review of the Company which
shall be performed by counsel for Parent and Acquisition Sub, accountants
and other representatives.
7.3. Conditions to Obligations of the Company. The obligations of the
Company to consummate the Merger and the related transactions contemplated
hereby are subject to the satisfaction of the following conditions unless waived
(to the extent such conditions can be waived) by the Company:
(a) Accuracy of Representations and Warranties. All representations
and warranties made by Parent and Acquisition Sub in this Agreement and the
Related Documents shall be true and correct in all material respects
(except for such representations and warranties which are qualified by
their terms by a reference to materiality, which representations and
warranties as so qualified shall be true in all respects) at and as of the
Effective Time with the same effect as if such representations and
warranties had been made at and as of the Effective Time, and the Company
shall have received a certificate signed by an authorized officer of each
of Parent and Acquisition Sub to that effect.
(b) Performance of Obligations of Parent and Acquisition Sub. Parent
and Acquisition Sub shall have performed in all material respects their
respective obligations and covenants required to be performed by them under
this Agreement and the Related Documents prior to or as of the Effective
Time, and the Company shall have received a certificate signed by an
authorized officer of each of Parent and Acquisition Sub to that effect.
(c) Authorization. All action necessary to authorize the execution,
delivery and performance of this Agreement and the Related Documents by
Parent and Acquisition Sub and the consummation of the transactions
contemplated hereby and thereby shall have been duly and validly taken by
Parent and Acquisition Sub.
(d) Government Consents, Authorizations, Etc. All consents,
authorizations, Orders or approvals of, and filings or registrations with,
any Governmental Entity which are required for or in connection with the
execution and delivery of this Agreement and the Related Documents by
Parent and Acquisition Sub and the consummation by Parent
-31-
and Acquisition Sub of the transactions contemplated hereby and thereby
shall have been obtained or made.
(e) Corporate Resolutions. The Company shall have received certified
copies of the resolutions of the respective boards of directors of Parent
and Acquisition Sub and the sole shareholder of Acquisition Sub, approving
this Agreement, the Merger, all other agreements and documents contemplated
hereby to which Parent and Acquisition Sub are a party and the consummation
of the transactions contemplated hereby.
(f) Officer's Certificate. Parent and Acquisition Sub shall have
delivered an Officer's Certificate dated as of the Closing Date to the
Company certifying (i) that attached thereto is a true and complete copy of
the respective certificate or articles of incorporation of Parent and
Acquisition Sub and all amendments thereto, if any; (ii) that attached
thereto is a true and complete copy of the by-laws of each of Parent and
Acquisition Sub as in effect on the date of such certification; and (iii)
as to the incumbency and genuineness of the signature of each officer of
Parent and Acquisition Sub executing this Agreement or any of the other
documents contemplated hereby.
(g) Restated Management Agreement. The Surviving Corporation and
Parent shall have executed and delivered to each Affirmative Shareholder
the Restated Management Agreement.
(h) Restricted Stock Agreements. Parent shall have executed and
delivered to each Affirmative Shareholder a Restricted Stock Agreement.
(i) Escrow Agreement. The Escrow Agreement shall have been duly and
validly executed by the parties thereto and shall be in full force and
effect.
SECTION 8. POST-CLOSING COVENANTS.
8.1. Parent Contributions. (a) During the period beginning on the Closing
Date and ending on the second anniversary of the Closing Date, Parent will
contribute an aggregate of $100,000 to the Surviving Corporation as
paid-in-capital, which capital contribution will be used by the Surviving
Company to pay general operating and administrative costs and expenses,
including conversion of the accounting systems used by the Company prior to the
Closing Date.
(b) At such time as the Surviving Corporation generates an aggregate of
$3,000,000 in annual revenues, Parent will cause the Surviving Corporation to
acquire a claims
-32-
processing system and to cease using an outside vendor to satisfy its claims
processing obligations under the Practice Management Agreements.
8.2. Ancillary Services. (a) The Surviving Corporation shall, and Parent
shall cause the Surviving Corporation to, enter into a written agreement with
those interested Shareholders and other interested physicians located in the
State of Arizona (collectively, the "Surgery Center Physicians") providing for
the development or acquisition of a surgery center. The development and/or
acquisition of a surgery center shall be accomplished utilizing a structure and
entity (the "Surgery Center Entity") mutually agreed upon by Parent and the
Shareholders' Representative. The Surviving Corporation will provide up to 70%
of the funds required for the project while the physician group will be required
to supply the remaining funds. The net operating income generated by the
operation of the Surgery Center Entity (which shall be determined by taking
gross revenues and deducting all expenses, including the Advisory Group Fee (as
hereinafter defined)) will be shared between the Surviving Corporation, on the
one hand, and the Surgery Center Physicians, on the other, in the same
proportion as the investment made by each such party. The Surviving Corporation
shall be responsible for the legal fees and expenses incurred in connection with
the financing and establishment of the Surgery Center Entity, which fees and
expenses the Surviving Corporation shall be entitled to be reimbursed for from
the revenues generated by the Surgery Center Entity (and before distribution of
net operating income) as soon as such proceeds are available for distribution.
(b) In connection with the surgery center, the Surgery Center Entity shall,
and the Surviving Corporation shall cause the Surgery Center Entity to, enter
into a clinical advisory agreement with an entity (the "Advisory Group"),
pursuant to which the Advisory Group will provide to the Surgery Center Entity
the following services, and such other services as may be necessary and prudent
to operate the clinical aspects of the Surgery Center Entity: (i) quality
assurance reviews; (ii) investigatory due diligence regarding the credentials of
any participating physician; and (iii) clinical management direction and advice.
As compensation for such services, the Advisory Group shall receive a fee (the
"Advisory Group Fee"), the amount of which will be commensurate with the scope
of the Advisory Group's duties and negotiated by the Surgery Center Entity and
the Advisory Group at such time.
(c) The Surviving Corporation may enter into similar arrangements with
interested Shareholders and other interested physicians with respect to other
ancillary services, such as physical therapy and magnetic resonance imaging,
under terms that are legally permissible at such time.
-33-
(d) The obligations of the Surviving Corporation and Parent set forth in
this Section 8.2 shall be performed to the fullest extent permitted by
applicable Federal and state law, provided that if any of such obligations are
prohibited thereunder, the Surviving Corporation and Parent shall attempt in
good faith to modify the arrangements described in this Section 8.2 such that
the general objectives of the transactions contemplated hereunder may be
consummated.
SECTION 9. INDEMNIFICATION.
9.1. Indemnification Generally; Etc. From and after the Closing Date:
(a) In Favor of the Buyer Group. Subject to the conditions set forth
in this Section 9, the Buyer Group (or any member thereof) shall be
indemnified out of the Escrow Amount and held harmless from and against any
and all Losses it may suffer, sustain or incur as a result of:
(i) the untruth, inaccuracy or breach of any representation or
warranty of the Company contained in Section 4 or in the Company
Disclosure Letter, or any certificate delivered in connection herewith
at or before the Effective Time; or
(ii) the breach of any agreement or covenant of the Company
contained in this Agreement or in the Company Disclosure Letter.
(b) In Favor of the Company. Subject to the conditions set forth in
this Section 9, the Company shall be indemnified and held harmless by
Parent and Acquisition Sub for any and all Losses they may suffer, sustain
or incur as a result of:
(i) the untruth, inaccuracy or breach of any representation or
warranty of Parent and Acquisition Sub contained in Section 5 or in
the Parent Disclosure Letter, or any certificate delivered in
connection herewith or therewith at or before the Effective Time; or
(ii) the breach of any agreement or covenant of Parent or
Acquisition Sub contained in this Agreement.
9.2. Limitations on Indemnification. Anything contained herein to the
contrary notwithstanding:
(a) Indemnity Limitations against the Escrow Amount. The sum of all
Losses pursuant to which indemnification is payable to the Buyer Group out
of the
-34-
Escrow Amount pursuant to Section 9.1(a)(i) shall not exceed the aggregate
Fair Market Value of the shares of Parent Common Stock held in escrow, and
with respect to any such Losses, the Buyer Group will only be entitled to
seek payment from the Escrow Amount (in the form of the return of the
Parent Common Stock so held in escrow at the Fair Market Value of such
Common Stock on the date of determination of any Loss) and will not be
permitted to seek payment directly from any one or more Shareholders.
(b) Indemnity Limitations for the Buyer Group. The sum of all Losses
pursuant to which indemnification is payable to the Company by Parent and
Acquisition Sub pursuant to Section 9.1(b)(i) shall not exceed $240,006 in
the aggregate.
9.3. Assertion of Claims. No claim shall be brought under Section 9.1
hereof unless the Indemnified Persons, or any of them, at any time prior to the
applicable Survival Date, give the Indemnifying Persons (a) written notice of
the existence of any such claim, specifying the nature and basis of such claim
and the amount thereof, to the extent known or (b) written notice pursuant to
Section 9.4 of any third party claim, the existence of which might give rise to
such a claim. Upon the giving of such written notice as aforesaid, the
Indemnified Persons, or any of them, shall have the right to commence legal
proceedings subsequent to the Survival Date for the enforcement of their rights
under Section 9.1 hereof.
9.4. Notice and Defense of Third Party Claims. The obligations and
Liabilities of an Indemnifying Person with respect to Losses resulting from the
assertion of liability by third parties (each, a "Third Party Claim") shall be
subject to the following terms and conditions:
(a) The Indemnified Persons shall promptly give written notice to the
Indemnifying Persons of any Third Party Claim which might give rise to any
Loss by the Indemnified Persons, stating the nature and basis of such Third
Party Claim, and the amount thereof to the extent known; provided, however,
that no delay on the part of the Indemnified Party in notifying any
Indemnifying Party shall relieve the Indemnifying Party from any Liability
or obligation hereunder unless (and then solely to the extent) the
Indemnifying Party thereby is prejudiced by the delay. Such notice shall be
accompanied by copies of all relevant documentation with respect to such
Third Party Claim, including, without limitation, any summons, complaint or
other pleading which may have been served, any written demand or any other
document or instrument.
(b) If the Indemnifying Persons shall acknowledge in a writing
delivered to the Indemnified Persons that the
-35-
Indemnifying Persons shall be obligated under the terms of their
indemnification obligations hereunder in connection with such Third Party
Claim, then the Indemnifying Persons shall have the right to assume the
defense of any Third Party Claim at their own expense and by their own
counsel, which counsel shall be reasonably satisfactory to the Indemnified
Persons; provided, however, that the Indemnifying Persons shall not have
the right to assume the defense of any Third Party Claim, notwithstanding
the giving of such written acknowledgment, if (i) the Indemnified Persons
shall have been advised by counsel that there are one or more legal or
equitable defenses available to them which are different from or in
addition to those available to the Indemnifying Persons, and, in the
reasonable opinion of the Indemnified Persons, counsel for the Indemnifying
Persons could not adequately represent the interests of the Indemnified
Persons because such interests could be in conflict with those of the
Indemnifying Persons, (ii) such action or Proceeding involves, or could
have a material effect on, any material matter beyond the scope of the
indemnification obligation of the Indemnifying Persons or (iii) the
Indemnifying Persons shall not have assumed the defense of the Third Party
Claim in a timely fashion.
(c) If the Indemnifying Persons shall assume the defense of a Third
Party Claim (under circumstances in which the proviso to the first sentence
of Section 9.4(b) is not applicable), the Indemnifying Persons shall not be
responsible for any legal or other defense costs subsequently incurred by
the Indemnified Persons in connection with the defense thereof. If the
Indemnifying Persons do not exercise their right to assume the defense of a
Third Party Claim by giving the written acknowledgement referred to in
Section 9.4(b), or are otherwise restricted from so assuming by the proviso
to the first sentence of Section 9.4(b), the Indemnifying Persons shall
nevertheless be entitled to participate in such defense with their own
counsel and at their own expense; and in any such case, the Indemnified
Persons may assume the defense of the Third Party Claim (at the cost and
expense of the Indemnifying Persons), with counsel which shall be
reasonably satisfactory to the Indemnifying Persons, and shall act
reasonably and in accordance with their good faith business judgment and
shall not effect any settlement without the consent of the Indemnifying
Persons, which consent shall not unreasonably be withheld or delayed.
(d) If the Indemnifying Persons exercise their right to assume the
defense of a Third Party Claim, they shall not make any settlement of any
claims without the written consent of the Indemnified Persons, which
consent shall not be unreasonably withheld.
-36-
9.5. Survival of Representations and Warranties; Deductions from the Escrow
Amount. (a) Subject to the further provisions of this Section 9.5, the
representations and warranties of the Company contained in Section 4 and the
representations and warranties of Parent and Acquisition Sub contained in
Section 5 shall survive the Effective Time until the second anniversary of the
Effective Time; provided, however, that the representations and warranties of
the Company contained in Sections 4.3, 4.4, 4.8 and 4.18 shall survive the
Effective Time until the fourth anniversary of the Effective Time. The covenants
and other agreements of the parties contained in this Agreement shall survive
the Effective Time until they are otherwise terminated, whether by their terms
or as a matter of applicable law. For convenience of reference, the date upon
which any representation, warranty, covenant or other agreement contained herein
shall terminate, if any, is referred to herein as the "Survival Date".
(b) In the event that the Buyer Group is entitled to indemnification
pursuant to Section 9.1(a) hereof, it shall instruct the Escrow Agent to deduct
from the Escrow Amount the amount of such Losses and may instruct the Escrow
Agent to hold in reserve out of the Escrow Amount the Buyer Group's good faith
estimate with respect to any claim for which notice has been timely given but
which is not yet resolved at the time a distribution is scheduled to be made
from the Escrow Amount under Section 3.2 hereof (an "Unresolved Claim"). At such
time as an Unresolved Claim is finally determined, that portion of the Escrow
Amount held in reserve which is equal to the Losses resulting from such
Unresolved Claim to which the Buyer Group is entitled to indemnification shall
be released from escrow and delivered to the Buyer Group in accordance with the
terms of the Escrow Agreement.
9.6. No Third Party Reliance. Anything contained herein to the contrary
notwithstanding, the representations and warranties of the Company contained in
this Agreement (including, without limitation, the Company Disclosure Letter)
(i) are being given by the Company as an inducement to Parent and Acquisition
Sub to enter into this Agreement and the Articles of Merger and to approve the
Merger (and the Company acknowledges that Parent and Acquisition Sub have
expressly relied thereon) and (ii) are solely for the benefit of Parent and
Acquisition Sub. Accordingly, no third party (including, without limitation, the
Shareholders or any other holder of capital stock of the Company) or anyone
acting on behalf of any thereof shall be a third party or other beneficiary of
such representations and warranties and no such third party shall have any
rights of contribution against the Company or the Surviving Corporation with
respect to such representations or warranties or any matter subject to or
resulting in indemnification under this Section 9, or otherwise.
-37-
SECTION 10. TERMINATION; EFFECT OF TERMINATION.
10.1. Termination. This Agreement may be terminated at any time prior to
the Closing by:
(a) the mutual consent of Acquisition Sub and the Company; or
(b) Acquisition Sub, if there has been a breach by the Company of any
representation, warranty, covenant or agreement set forth in this Agreement
on the part of the Company which is material and which the Company fails to
cure within 10 Business Days after notice thereof is given by Acquisition
Sub (except no cure period shall be provided for a breach by the Company
which by its nature cannot be cured); or
(c) the Company, if there has been a breach by Parent or Acquisition
Sub of any representation, warranty, covenant or agreement set forth in
this Agreement on the part of Parent or Acquisition Sub which is material
and which Parent or Acquisition Sub fails to cure within 10 Business Days
after notice thereof is given by the Company (except no cure period shall
be provided for a breach by Parent or Acquisition Sub which by its nature
cannot be cured); or
(d) Acquisition Sub or the Company, if the conditions set forth in
Section 7.1 shall not have been satisfied or waived (to the extent they may
be waived) by October 10, 1997; or
(e) Acquisition Sub, if the conditions set forth in Section 7.2 shall
not have been satisfied or waived (to the extent they may be waived) by
October 10, 1997; or
(f) the Company, if the conditions set forth in Section 7.3 shall not
have been satisfied or waived (to the extent they may be waived) by October
10, 1997; or
(g) Acquisition Sub or the Company, if any permanent injunction or
other Order of a court or other competent authority preventing the Closing
shall have become final and nonappealable;
provided, however, that none of the Company, Parent nor Acquisition Sub shall be
entitled to terminate this Agreement pursuant to Section 10.1(d), (e) or (f) if
such party's intentional breach of this Agreement has prevented the satisfaction
of a condition. Any termination pursuant to Section 10.1(a) shall be effected by
a written instrument signed by Acquisition Sub and the Company, and any
termination pursuant to this Section 10.1 (other than a termination pursuant to
-38-
Section 10.1(a)) shall be effected by written notice from the party or parties
so terminating to the other parties hereto, which notice shall specify the
Section hereof pursuant to which this Agreement is being terminated.
10.2. Effect of Termination. In the event of the termination of this
Agreement as provided in Section 10.1, this Agreement shall be of no further
force or effect, except for Sections 6.6, this Section 10.2 and Section 11, each
of which shall survive the termination of this Agreement; provided, however,
that the Liability of any party for any breach by such party of the
representations, warranties, covenants or agreements of such party set forth in
this Agreement occurring prior to the termination of this Agreement shall
survive the termination of this Agreement and, in addition, in the event of any
action for breach of contract in the event of a termination of this Agreement,
the prevailing party shall be reimbursed by the other party to the action for
reasonable attorneys' fees and expenses relating to such action.
SECTION 11. MISCELLANEOUS PROVISIONS.
11.1. Expenses. Each of the Company, on the one hand, and Parent and
Acquisition Sub, on the other hand, shall bear their own fees and expenses
incurred in connection with the preparation, execution and delivery of this
Agreement and the Related Documents and the consummation of the transactions
contemplated hereby and thereby; provided, however, that Parent will pay up to
an aggregate amount of $15,000 towards the Company's expenses (the "Company
Expenses") upon receipt of a certificate (the "Expense Certificate") executed by
the Company setting forth such expenses and certifying to the accuracy thereof;
provided further, however, that if the Closing of the transactions contemplated
under this Agreement occurs, Parent will pay all of the Company Expenses.
11.2. Amendment. This Agreement may not be amended except by an instrument
in writing signed on behalf of each of Acquisition Sub, the Company and the
Shareholders' Representative.
11.3. Extension; Waiver. At any time prior to the Closing, the parties may
(a) extend the time for the performance of any of the obligations or other acts
of the other parties, (b) waive any inaccuracies in the representations and
warranties contained in this Agreement or in any document delivered pursuant to
this Agreement and (c) waive compliance with any of the agreements or conditions
contained in this Agreement. Any agreement on the part of a party to any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such party, and any such waiver shall not operate or be
construed as a waiver of any subsequent breach by the other party.
-39-
11.4. Entire Agreement. This Agreement and the other agreements and
documents referenced herein (including, but not limited to, the Disclosure
Letters and the Exhibits (in their executed form) attached hereto) contain all
of the agreements among the parties hereto with respect to the transactions
contemplated hereby and supersede all prior agreements or understandings among
the parties with respect thereto (including, but not limited to, the term sheet
dated as of May 12, 1997, between Parent and the Company.
11.5. Severability. It is the desire and intent of the parties that the
provisions of this Agreement be enforced to the fullest extent permissible under
the Law and public policies applied in each jurisdiction in which enforcement is
sought. Accordingly, in the event that any provision of this Agreement would be
held in any jurisdiction to be invalid, prohibited or unenforceable for any
reason, such provision, as to such jurisdiction, shall be ineffective, without
invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of such provision in any other jurisdiction.
Notwithstanding the foregoing, if such provision could be more narrowly drawn so
as not to be invalid, prohibited or unenforceable in such jurisdiction, it
shall, as to such jurisdiction, be so narrowly drawn, without invalidating the
remaining provisions of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction.
11.6. No Third-Party Beneficiaries; Successors and Assigns. Except as
expressly provided herein, this Agreement shall not confer any rights or
remedies upon any Person other than the parties hereto and their respective
successors and permitted assigns. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
permitted assigns, representatives, heirs and estates, as the case may be. This
Agreement shall not be assignable by any party hereto without the consent of the
other parties hereto; provided, however, that anything contained herein to the
contrary notwithstanding, the Surviving Corporation, Parent and/or Acquisition
Sub may, without the prior written consent of any other party, assign any or all
of its rights and interests hereunder to any lender providing financing for the
transactions contemplated hereby.
11.7. Headings. Descriptive headings are for convenience only and shall not
control or affect in any way the meaning or construction of any provision of
this Agreement.
11.8. Notices. All notices or other communications pursuant to this
Agreement shall be in writing and shall be deemed to be sufficient if delivered
personally, telecopied, sent by nationally-recognized, overnight courier or
mailed by registered or certified mail (return receipt requested), postage
-40-
prepaid, to the parties at the following addresses (or at such other address for
a party as shall be specified by like notice):
(a) if to the Company, to:
Orthopaedic Management Network, Inc.
000 X. Xxxx Xxxxxxxxx
Xxxxx 000
Xxxxxxx, Xxxxxxx 00000
Attention: Xxx Zoltan, M.D.
Telecopier: (000) 000-0000;
with a copy to:
Xxxxxxxxx & Xxxxxxx, P.A.
0000 X. Xxxxxxx Xxxxxx
Xxxxxxx, Xxxxxxx 00000-0000
Attention: Xxxxxx Xxxxxx, Esq.
Telecopier: (000) 000-0000;
(b) if to the Shareholders' Representative, to:
Xxx Xxxxxx, M.D.
0000 X. Xxxxxxxx
Xxxxxxx, Xxxxxxx 00000
Telecopier: (000) 000-0000;
(c) if to Parent, Acquisition Sub or the
Surviving Corporation, to:
BMJ Medical Management, Inc.
0000 X. Xxxxxxx Xxxxxxx
Xxxxx 000-X
Xxxx Xxxxx, Xxxxxxx 00000
Attention: Xxxxxx Xxxxxx, M.D.
Telecopier: (000) 000-0000;
with a copy to:
X'Xxxxxxxx Graev & Karabell, LLP
00 Xxxxxxxxxxx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxx X. Held, Esq.
Telecopier: (000) 000-0000.
All such notices and other communications shall be deemed to have been given and
received (i) in the case of personal delivery, on the date of such delivery,
(ii) in the case of delivery by telecopy, on the date of such delivery, (iii) in
the case of delivery by nationally-recognized, overnight courier, on the
Business Day following dispatch, and (iv) in the case of mailing, on the third
Business Day following such mailing.
-41-
11.9. Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute one agreement.
11.10. Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic Laws of the State of Arizona without giving effect
to any choice or conflict of law provision or rule (whether of the State of New
York or any other jurisdiction) that would cause the application of the Laws of
any jurisdiction other than the State of Arizona.
11.11. Incorporation of Exhibits and Schedules. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
11.12. Construction. Where specific language is used to clarify by example
a general statement contained herein, such specific language shall not be deemed
to modify, limit or restrict in any manner the construction of the general
statement to which it relates. The language used in this Agreement shall be
deemed to be the language chosen by the parties to express their mutual intent,
and no rule of strict construction shall be applied against any party.
11.13. Remedies. Subject to the provisions of Section 9.2, the parties
shall each have and retain all other rights and remedies existing in their favor
at law or equity, including, without limitation, any actions for specific
performance and/or injunctive or other equitable relief (including, without
limitation, the remedy of rescission) to enforce or prevent any violations of
the provisions of this Agreement.
11.14. Waiver of Jury Trial. Each of the parties hereto hereby irrevocably
waives all right to trial by jury in any action, Proceeding or counterclaim
arising out of or relating to this Agreement.
* * *
-42-
IN WITNESS WHEREOF, each of the parties hereto has duly executed this
Agreement and Plan of Reorganization as of the date first written above.
Parent:
BMJ MEDICAL MANAGEMENT, INC.
By:___________________________
Xxxxxx Xxxxxx, M.D.
President
Acquisition Sub:
OMNI ACQUISITION CORPORATION
By:___________________________
Xxxxxx Xxxxxx, M.D.
President
Company:
ORTHOPAEDIC MANAGEMENT NETWORK, INC.
By:___________________________
Xxx Xxxxxx, M.D.
President
By:___________________________
Xxx Xxxxxx, M.D.
Secretary
Shareholders' Representative:
______________________________
Xxx Xxxxxx, M.D.
Annex I
-------
DEFINITIONS
The following terms used in the Agreement and Plan of Reorganization shall
have the following respective meanings:
"Acquisition Sub" has the meaning set forth in the caption.
"Additional Equity Amount" has the meaning set forth in Section 2.
"Advisory Group" has the meaning set forth in Section 8.2(b).
"Advisory Group Fee" has the meaning set forth in Section 8.2(b).
"Affiliate" means, with respect to any Person, (i) a director, officer or
25% stockholder of such Person, (ii) a spouse, parent, sibling or descendant of
such Person (or spouse, parent, sibling or descendant of any director or
executive officer of such Person), and (iii) any other Person that, directly or
indirectly through one or more intermediaries, Controls, or is Controlled by, or
is under common Control with, such Person.
"Arizona Statute" has the meaning set forth in the preamble.
"Articles of Merger" has the meaning set forth in the preamble.
"Best Knowledge" of any Person shall mean and include (i) actual knowledge
and (ii) that knowledge which a prudent business person could have obtained in
the management of his business affairs after making due inquiry and exercising
due diligence which a prudent business person should have made or exercised, as
applicable, with respect thereto. In connection therewith, the knowledge (both
actual and constructive) of any Shareholder or any managerial employee of the
Company shall be imputed to be the knowledge of the Company.
"Business Day" means any day that is not a Saturday, Sunday or a day on
which banking institutions in New York, New York are not required to be open.
"Buyer Group" means Acquisition Sub, Parent, the Surviving Corporation and
each of their respective successors and assigns, officers, directors, employees,
representatives and Affiliates, other than any Shareholder.
"Cash Merger Consideration" has the meaning set forth in Section 2.1.
"Closing" has the meaning set forth in Section 1.7.
"Closing Date" has the meaning set forth in Section 1.7.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the caption.
"Company Common Stock" has the meaning set forth in the preamble.
"Company Disclosure Letter" has the meaning set forth in Section 4.1.
"Company's By-laws" means the by-laws of the Company.
"Company's Charter" means the certificate or articles of incorporation of
the Company.
"Company Financial Statements" has the meaning set forth in Section 4.5.
"Constituent Corporations" has the meaning set forth in Section 1.1.
"Contract" means any loan or credit agreement, note, bond, mortgage,
indenture, lease, sublease, purchase order or other agreement, instrument,
permit, concession, franchise or license.
"Control" means, with respect to any Person, the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise.
"Corporate Rights" has the meaning set forth in Section 1.3.
"Effective Time" has the meaning set forth in Section 1.2.
"Employee Plan" means any "employee benefit plan" (as defined in Section
3(3) of ERISA) as well as any other plan, program or arrangement involving
direct and indirect compensation, under which the Company or any ERISA Affiliate
of the Company has any present or future obligations or Liability on behalf of
its employees or former employees, contractual employees or their dependents or
beneficiaries.
A-2
"Encumbrances" means and includes security interests, mortgages, liens,
pledges, charges, easements, reservations, restrictions, clouds, equities,
rights of way, options, rights of first refusal and all other encumbrances,
whether or not relating to the extension of credit or the borrowing of money.
"Environmental, Health and Safety Laws" means all Laws, Permits and
Contracts with Governmental Entities relating to or addressing pollution or
protection of the environment, public health and safety, or employee health and
safety, including, but not limited to, the Solid Waste Disposal Act, as amended,
42 U.S.C. ss.ss.6901, et seq., the Clean Air Act, as amended, 42 U.S.C.
ss.ss.7401 et seq., the Federal Water Pollution Control Act, as amended, 33
U.S.C. ss.ss.1251 et seq., the Emergency Planning and Community Right-to-Know
Act, 42 U.S.C. ss.ss.11001 et seq., the Comprehensive Environmental Response,
Compensation, and Liability Act, as amended, 42 U.S.C. ss.ss.9601 et seq., the
Hazardous Materials Transportation Uniform Safety Act, as amended, 49 U.S.C.
ss.1804 et seq., the Occupational Safety and Health Act of 1970, the regulations
promulgated thereunder, and any similar Laws and other requirements having the
force or effect of Law, and all Orders issued or promulgated thereunder, and all
related common law theories.
"ERISA" means the Employment Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means, with respect to any Person, any entity that is a
member of a "controlled group of corporations" with, or is under "common
control" with, or is a member of the same "affiliated service group" with such
Person as defined in Section 414(b), 414(c) or 414(m) of the Code.
"Escrow Agent" has the meaning set forth in Section 2.3(a).
"Escrow Agreement" means the Escrow Agreement among Parent, the
Stockholders' Representative and the Escrow Agent.
"Escrow Amount" has the meaning set forth in Section 2.1.
"Fair Market Value" of each share of Parent Common Stock means the average
of the closing prices of the sales of Parent Common Stock on all securities
exchanges on which the Parent Common Stock may at the time be listed, or, if
there have been no sales on any such exchange on any given day, the average of
the last bid and asked prices on all such exchanges at the end of such day, or,
if on any given day the Parent Common Stock is not so listed, the average of the
representative bid and asked prices quoted in the Nasdaq Stock Market National
Market System ("Nasdaq") as of 4:00 P.M., New York time, or, if on any given day
the Parent Common Stock is not quoted in Nasdaq, the average of the bid and
asked prices on such day in the domestic over-the-counter market as reported by
the National Quotation Bureau
A-3
Incorporated, or any similar successor organization, in each such case averaged
over a period of 21 days consisting of the day as of which the Fair Market Value
is being determined and the 20 consecutive trading days prior to such day. If at
any time the Parent Common Stock is not listed on any securities exchange or
quoted in Nasdaq or the over-the-counter market, the Fair Market Value shall be
that value jointly determined by the Stockholders' Representative and Parent,
provided that if they cannot so agree, such value shall be determined by a
mutually acceptable investment banking or other qualified firm of national or
regional reputation, retained jointly by Parent and the Stockholders'
Representative, and all fees, expenses and other charges of such firm incurred
in connection with such determination of Fair Market Value shall be paid 50% by
Parent and 50% out of the Escrow Amount; provided, however, that the amount
payable out of the Escrow Amount shall be paid in shares of Parent Common Stock
(the number of which shall be determined using the then current Fair Market
Value for such shares), and Parent and the Shareholders' Representative shall
instruct the Escrow Agent to deliver such shares to Parent, and Parent shall
retain such shares and pay the corresponding amount in cash to such firm. shall
be borne and shared equally by Parent and the Stockholders' Representative. In
the event that the parties are unable to agree upon such an investment banking
or other qualified firm within ten (10) days after the date on which either
party may initially propose such a firm, a qualified firm shall be selected in
the following manner:
First, the Stockholders' Representative shall send a list of four such
firms, arranged in order of the Stockholders' Representative's preference,
by written notice to Parent within seven (7) days after the expiration of
the above referenced 10-day period. If the Stockholders' Representative
does not furnish such list to Parent within the required time period,
Parent may, within seven (7) days following expiration of the initial
seven-day period, submit a list of four such firms to the Stockholders'
Representative.
Second, Parent (or the Stockholders' Representative, as applicable)
shall select, within seven (7) days after receipt of the above-referenced
list, one of the firms identified on such list and shall give written
notice thereof to the other party. If the recipient of such list does not
make any such selection, the firm identified as the first choice on such
list shall be deemed acceptable and agreeable to each of the parties.
"First Equity Contingency Amount" has the meaning set forth in Section 2.1.
"First Per Merger Share Contingency Amount" has the meaning set forth in
Section 2.1.
A-4
"Governmental Entity" means any court, administrative agency or commission
or other governmental authority or instrumentality, domestic or foreign,
Federal, state or local.
"Hazardous Materials" means any hazardous or toxic chemicals, materials or
substances, pollutants, contaminants, or crude oil or any fraction thereof (as
such terms are defined under any Environmental, Health and Safety Law).
"Indemnified Persons" means the Buyer Group, or the Company, as the case
may be.
"Indemnifying Persons" means the Company or Parent and Acquisition Sub, as
the case may be.
"Initial Equity Amount" has the meaning set forth in Section 2.1.
"Intellectual Property Rights" means all industrial and intellectual
property rights, including, without limitation, patents, patent applications,
patent rights, trademarks, trademark applications, trade names, service marks,
service xxxx applications, copyrights, copyright applications, know-how, trade
secrets, proprietary processes and formulae, confidential information,
franchises, licenses, inventions, instructions, marketing materials, trade
dress, logos and designs and all documentation and media constituting,
describing or relating to the foregoing, including, without limitation, manuals,
memoranda and records.
"Latest Company Balance Sheet" has the meaning set forth in Section 4.5(b).
"Latest Company Balance Sheet Date" has the meaning set forth in Section
4.5(b).
"Latest Parent Balance Sheet" has the meaning set forth in Section 5.5(b).
"Latest Parent Balance Sheet Date" has the meaning set forth in Section
5.5(b).
"Law" means any law, statute, treaty, rule, directive or regulation or
Order of any Governmental Entity.
"Leased Real Property" means real property leased by the Company.
"Liability" means any liability or obligation, whether known or unknown,
asserted or unasserted, absolute or contingent, accrued or unaccrued, liquidated
or unliquidated and whether due or to become due, regardless of when asserted.
"Losses" means any and all losses, claims, shortages, damages, liabilities,
expenses (including reasonable attorneys'
A-5
and accountants' and other professionals' fees), assessments, Tax deficiencies
and Taxes incurred in connection with the receipt of indemnification payments
(including interest or penalties thereon) arising from or in connection with any
such matter that is the subject of indemnification under Section 9.1.
"Material Adverse Change" means, with respect to any Person, any material
adverse change in the business, operations, assets (including levels of working
capital and components thereof), condition (financial or otherwise), operating
results, Liabilities, employee relations or business prospects of such Person or
any material casualty loss or damage to the assets of such Person, whether or
not covered by insurance.
"Material Adverse Effect" on any Person means a material adverse effect on
the business, operations, assets (including levels of working capital and
components thereof), condition (financial or otherwise), operating results,
Liabilities, employee relations or business prospects of such Person.
"Merger" has the meaning set forth in the preamble.
"Merger Consideration" has the meaning set forth in Section 2.1.
"Merger Shares" has the meaning set forth in Section 2.1.
"Orders" means judgments, writs, decrees, compliance agreements,
injunctions or orders of any Governmental Entity or arbitrator.
"Owned Real Property" means real property owned by the Company.
"Parent" has the meaning set forth in the caption.
"Parent Common Stock" means the common stock, $.001 par value, of Parent,
as restricted pursuant to the terms and provisions of the Restricted Stock
Agreement.
"Parent Disclosure Letter" has the meaning set forth in Section 5.1.
"Parent Financial Statements" has the meaning set forth in Section 5.5.
"Parent's By-Laws" means the by-laws of Parent.
"Parent's Charter" means the certificate of incorporation of Parent.
"Per Merger Share Additional Equity Amount" has the meaning set forth in
Section 2.1.
A-6
"Per Merger Share Cash Amount" has the meaning set forth in Section 2.1.
"Per Merger Share Stock Equivalent" has the meaning set forth in Section
2.1.
"Permits" means all permits, licenses, authorizations, registrations,
franchises, approvals, certificates, variances and similar rights obtained, or
required to be obtained, from Governmental Entities.
"Permitted Encumbrances" means (i) Encumbrances for Taxes not yet due and
payable or being contested in good faith by appropriate proceedings and for
which there are adequate reserves on the books, (ii) workers or unemployment
compensation liens arising in the ordinary course of business; and (iii)
mechanic's, materialman's, supplier's, vendor's or similar liens arising in the
ordinary course of business securing amounts that are not delinquent.
"Person" shall be construed broadly and shall include an individual, a
partnership, a corporation, a limited liability company, an association, a joint
stock company, a trust, a joint venture, an unincorporated organization or a
governmental entity (or any department, agency or political subdivision
thereof).
"Potential Transaction" has the meaning set forth in Section 6.7(a).
"Practice Management Agreement" means the Practice Management Services
Agreement entered into between the Company and each Shareholder and other
physician providers in the Company's network.
"Proceedings" means actions, suits, claims, investigations or legal or
administrative or arbitration proceedings.
"Real Property" means the Owned Property and the Leased Property.
"Related Documents" means, collectively, the Articles of Merger, the
Consulting Agreement, the Restated Management Agreement, the Escrow Agreement,
and the Restricted Stock Agreements.
"Restated Management Agreement" has the meaning set forth in Section
7.2(j).
"Restricted Stock Agreement" means the Restricted Stock Agreement to be
entered into between Parent and each holder of Merger Shares upon the
effectiveness of the Merger, in substantially the form of Exhibit E attached
hereto.
A-7
"Second Equity Contingency Amount" has the meaning set forth in Section
2.1.
"Second Per Merger Share Contingency Amount" has the meaning set forth in
Section 2.1.
"Share Number" has the meaning set forth in Section 2.1.
"Shareholder(s)" has the meaning set forth in the caption.
"Shareholder Group" means each of the Shareholders and their respective
representatives, heirs and estate.
"Shareholder Materials" has the meaning set forth in Section 1.6(b).
"Shareholders' Representative" has the meaning set forth in Section 6.8.
"Stock Merger Consideration" has the meaning set forth in Section 2.1.
"Subject Business" has the meaning set forth in the preamble.
"Surgery Center Entity" has the meaning set forth in Section 8.2(a).
"Surgery Center Physicians" has the meaning set forth in Section 8.2(a).
"Survival Date" has the meaning set forth in Section 9.5(a).
"Surviving Corporation" has the meaning set forth in Section 1.1.
"Tax" means any of the Taxes.
"Tax Returns" means Federal, state, local and foreign tax returns, reports,
statements, declarations of estimated tax and forms.
"Taxes" means, with respect to any entity, (i) all income taxes (including
any tax on or based upon net income, gross income, income as specially defined,
earnings, profits or selected items of income, earnings or profits) and all
gross receipts, sales, use, ad valorem, transfer, franchise, license,
withholding, payroll, employment, excise, severance, stamp, occupation, premium,
property or windfall profits taxes, alternative or add-on minimum taxes, customs
duties and other taxes, fees, assessments or charges of any kind whatsoever,
together with all interest and penalties, additions to tax and
A-8
other additional amounts imposed by any taxing authority (domestic or foreign)
on such entity (if any) and (ii) any liability for the payment of any amount of
the type described in the immediately preceding clause (ii) as a result of (A)
being a "transferee" (within the meaning of Section 6901 of the Code or any
other applicable law) of another entity, (B) being a member of an affiliated or
combined group or (C) any contractual obligation.
"Third-Party Claim" has the meaning set forth in Section 9.4.
"Transition Period" has the meaning set forth in Section 6.1.
A-9
