Exhibit 10.63
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
FEMPARTNERS, INC.,
FEMPARTNERS OF CENTRAL TEXAS, INC.
AND
SYNTERA HEALTHCARE CORPORATION
August 31, 1999
TABLE OF CONTENTS
Page
ARTICLE I THE MERGER.........................................................1
Section 1.1. The Merger...........................................1
Section 1.2. Effective Time of the Merger.........................2
ARTICLE II THE SURVIVING CORPORATION..........................................2
Section 2.1. Certificate of Incorporation.........................2
Section 2.2. Bylaws...............................................2
Section 2.3. Directors........................ ...................2
Section 2.4. Officers.............................................2
ARTICLE III CONVERSION OF SHARES...............................................2
Section 3.1. Effect on Capital Stock..............................2
Section 3.2. Adjustments to Merger Consideration..................4
Section 3.3. Anti-Dilution........................................7
Section 3.4. Exchange of Certificates.............................7
Section 3.5. Stock Transfer Books.................................7
Section 3.6. No Further Ownership Rights in Company Common Stock..7
Section 3.7. Tax and Accounting Consequences......................8
Section 3.8. Taking of Necessary Action; Further Action...........8
Section 3.9. Closing..............................................8
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND
MERGER SUB.........................................................8
Section 4.1. Organization and Qualification.......................8
Section 4.2. Capitalization.......................................9
Section 4.3. Subsidiaries........................................10
Section 4.4. Authority; Non-Contravention; Approvals.............10
Section 4.5. Parent Financial Information........................11
Section 4.6. Absence of Undisclosed Liabilities..................11
Section 4.7. Absence of Certain Changes or Events................11
Section 4.8. Litigation..........................................13
Section 4.9. Accounts Receivable.................................13
Section 4.10. No Violation of Law; Compliance with Agreements....13
Section 4.11. Insurance..........................................14
Section 4.12. Taxes..............................................14
Section 4.13. Employee Benefit Plans.............................15
Section 4.14. Employee and Labor Matters. .....................16
Section 4.15. Environmental Matters..............................17
Section 4.16. Non-Competition Agreements.........................18
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Section 4.17. Title to Assets....................................18
Section 4.18. Contracts..........................................18
Section 4.19. Brokers and Finders................................18
Section 4.20. Intellectual Property..............................19
Section 4.21. Relationships......................................19
Section 4.22. Certain Payments...................................19
Section 4.23. Books and Records..................................19
Section 4.24. Condition and Sufficiency of Assets................20
Section 4.25. Offering. ........................................20
Section 4.26. Staff Privileges...................................20
Section 4.27. Fraud and Abuse....................................20
Section 4.28. Medicare, Medicaid, and Other Third-Party Payor
Payment Liabilities. ........................21
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE COMPANY.....................21
Section 5.1. Organization and Qualification......................21
Section 5.2. Capitalization......................................21
Section 5.3. Subsidiaries........................................22
Section 5.4. Authority; Non-Contravention; Approvals.............22
Section 5.5. Company Financial Information.......................23
Section 5.6. Absence of Undisclosed Liabilities..................23
Section 5.7. Absence of Certain Changes or Events................24
Section 5.8. Litigation..........................................25
Section 5.9. Accounts Receivable.................................25
Section 5.10. No Violation of Law; Compliance with Agreements....26
Section 5.11. Insurance..........................................27
Section 5.12. Taxes..............................................27
Section 5.13. Employee Benefit Plans.............................28
Section 5.14. Employee and Labor Matters.........................29
Section 5.15. Environmental Matters..............................30
Section 5.16. Non-Competition Agreements.........................31
Section 5.17. Title to Assets....................................31
Section 5.18. Contracts, Agreements, Plans and Commitments.......32
Section 5.19. Section 368 Representations.......................33
Section 5.20. Brokers and Finders................................34
Section 5.21. Intellectual Property..............................34
Section 5.22. Relationships......................................34
Section 5.23. Certain Payments...................................34
Section 5.24. Books and Records..................................35
Section 5.25. Condition and Sufficiency of Assets................35
Section 5.26. Offering...........................................35
Section 5.27. Staff Privileges...................................35
Section 5.28. Fraud and Abuse....................................35
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Section 5.29. Medicare, Medicaid, and Other Third-Party
Payor Payment Liabilities. ...................................................36
Section 5.30. Bank Accounts; Powers of Attorney..................36
Section 5.31. Year 2000 Compliance...............................36
ARTICLE VI CONDUCT OF BUSINESS PENDING THE MERGER............................37
Section 6.1. Conduct of Business Pending the Merger..............37
Section 6.2. Control of the Company's Operations.................39
Section 6.3. Other Offers........................................39
ARTICLE VII ADDITIONAL AGREEMENTS.............................................39
Section 7.1. Access to Information...............................39
Section 7.2. Expenses and Fees...................................39
Section 7.3. Agreement to Cooperate..............................40
Section 7.4. Public Statements...................................40
Section 7.5. Notification of Certain Matters.....................40
Section 7.6. Exclusivity.........................................40
Section 7.7. Confidentiality.....................................41
Section 7.8. Registration Rights. ..............................41
Section 7.9. Share Exchange Agreements...........................49
Section 7.10. Employee Benefits. ...............................49
Section 7.11. Filings. .........................................49
Section 7.12. Net Working Capital................................49
Section 7.13. Advances under Promissory Note; Payables. .........52
Section 7.14. Advances under Promissory Note; Event of Default...54
Section 7.15. Non-Interference. ................................55
Section 7.16. Insurance..........................................56
ARTICLE VIII CONDITIONS TO CLOSING............................................56
Section 8.1. Conditions to Each Party's Obligation to Effect
the Merger...................................56
Section 8.2. Conditions to Obligation of the Company to Effect
the Merger...................................57
Section 8.3. Conditions to Obligations of Parent and Merger Sub to
Effect the Merger............................58
ARTICLE IX TERMINATION, AMENDMENT AND WAIVER.................................60
Section 9.1. Termination.........................................60
Section 9.2. Effect of Termination...............................62
Section 9.3. Amendment...........................................62
Section 9.4. Extensions; Waiver..................................62
ARTICLE X INDEMNIFICATION...................................................62
Section 10.1. The Shareholders' Indemnity Obligations............62
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Section 10.2. Parent's Indemnity Obligations.....................63
Section 10.3. Indemnification Procedures.........................63
Section 10.4. Determination and Payment of Indemnified Amounts...65
Section 10.5. Limitation of Shareholders' Liability..............67
Section 10.6. Limitation of Parent's Liability...................67
Section 10.7. Limitation on Indemnified Amounts. ................68
Section 10.8. Right of Subrogation................................68
ARTICLE XI GENERAL PROVISIONS................................................68
Section 11.1. Survival...........................................68
Section 11.2. Notices............................................69
Section 11.3. Interpretation.....................................70
Section 11.4. Miscellaneous......................................70
Section 11.5. Governing Law......................................70
Section 11.6. Binding Arbitration................................70
Section 11.7. Counterparts.......................................72
Section 11.8. Entire Agreement...................................72
Section 11.9. Parties in Interest................................72
Section 11.10. Enforcement of the Agreement......................73
Section 11.11. Validity..........................................73
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EXHIBITS:
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Exhibit A Glossary
Exhibit B Company Existing Practices
Exhibit C Existing Management Agreements
Exhibit D Calculation of Management Fee Contribution Margin
Exhibit E Replacement Promissory Note
Exhibit F Adjustments to GAAP
Exhibit G First Payables Balance Sheet
Exhibit H Non-Competition Agreements
Exhibit I Parent Guaranty
Exhibit J Co-Sale Rights Agreement
Exhibit K Lease Agreement
Exhibit L Subordination Agreement
Exhibit M Investors' Certificate
Exhibit N Investors Rights Agreement
Exhibit O Professional Service Provider Security Agreement
Exhibit P Security Agreement
SCHEDULES:
---------
Schedule 2.1 Surviving Corporation's Certificate of Incorporation
Schedule 2.2 Surviving Corporation's Bylaws
Schedule 2.3 Directors of the Surviving Corporation
Schedule 2.4 Officers of the Surviving Corporation
Schedule 3.1(a) Shareholder Consideration
Schedule 3.2(a) Ancillary Services
Schedule 4.1 Merger Sub Assets
Schedule 4.2(a) Parent Capitalization
Schedule 4.2(b) Other Outstanding Capital Stock
Schedule 4.3 Subsidiaries
Schedule 4.5 Parent Financial Statements
Schedule 4.6 Absence of Undisclosed Liabilities
Schedule 4.7 Absence of Certain Changes or Events
Schedule 4.8 Parent Litigation
Schedule 4.9 Parent Accounts Receivable
Schedule 4.10 Parent Permits
Schedule 4.11 Insurance
Schedule 4.12 Parent Taxes
Schedule 4.13 Parent Employee Benefit Plans
Schedule 4.14 Parent Employment and Labor Matters
Schedule 4.16 Parent Non-Competition Agreements
Schedule 4.17 Title to Assets
Schedule 4.18 Contracts
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Schedule 4.20 Parent Intellectual Property
Schedule 4.21 Relationships
Schedule 5.2(b) Other Outstanding Capital Stock
Schedule 5.5 Company Financial Statements
Schedule 5.6 Absence of Undisclosed Liabilities
Schedule 5.7 Absence of Certain Changes or Events
Schedule 5.8 Company Litigation
Schedule 5.9 Company Accounts Receivable
Schedule 5.10(b) No Violation of Law; Compliance with Agreements
Schedule 5.11 Company Insurance Policies
Schedule 5.12 Company Taxes
Schedule 5.13 Company Employee Benefit Plans
Schedule 5.14 Company Employee and Labor Matters
Schedule 5.16 Company Non-Competition Agreement
Schedule 5.17 Title to Assets
Schedule 5.18 Contracts, Agreements, Plans and Commitments
Schedule 5.19(a) Share Exchange Agreements
Schedule 5.19(c) Section 368 Representations
Schedule 5.27 Staff Privileges
Schedule 5.30 Bank Accounts; Powers of Attorney
Schedule 5.31 Year 2000 Noncompliance
Schedule 6.1 Conduct of Business Pending Merger
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated effective as of August 31,
1999 (the "Agreement"), is by and among FEMPARTNERS, INC., a Delaware
corporation ("Parent"), FEMPARTNERS OF CENTRAL TEXAS, INC., a Delaware
corporation and a wholly owned subsidiary of Parent ("Merger Sub") and SYNTERA
HEALTHCARE CORPORATION, a Texas corporation (the "Company").
W I T N E S E T H:
WHEREAS, Parent, Merger Sub and the Company desire that the Company
merge with and into the Merger Sub (the "Merger");
WHEREAS, Parent, Merger Sub and the Company intend the Merger to
qualify as a tax-free reorganization under the provisions of Section 368 of the
Internal Revenue Code of 1986, as amended (the "Code"), and the regulations
thereunder;
WHEREAS, Parent and Merger Sub are making certain representations,
warranties and indemnities as an inducement to the Company and each of its
shareholders (individually a "Shareholder" and collectively the "Shareholders")
to enter into this Agreement;
WHEREAS, the Company is making certain representations, warranties and
indemnities as an inducement to Parent and Merger Sub to enter into this
Agreement; and
WHEREAS, capitalized terms used but not otherwise defined herein shall
have the meanings ascribed to them in the Glossary attached as Exhibit A.
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements contained herein, the
parties hereto, intending to be legally bound, agree as follows:
ARTICLE I
THE MERGER
Section 1.1. The Merger. Upon the terms and subject to the conditions
of this Agreement, at the Effective Time (as defined in Section 1.2) in
accordance with the Delaware General Corporation Law ("DGCL") and the Texas
Business Corporation Act ("TBCA"), the Company shall be merged with and into the
Merger Sub and the separate existence of the Company shall thereupon cease.
Merger Sub shall be the surviving corporation in the Merger and is hereinafter
sometimes referred to as the "Surviving Corporation."
Section 1.2. Effective Time of the Merger. The Merger shall become
effective at such time (the "Effective Time") as (i) a certificate of merger is
filed with the Secretary of State of the
State of Delaware in accordance with the DGCL and (ii) articles of merger are
filed with the Secretary of State of the State of Texas in accordance with the
TBCA (the "Merger Filings"). The Merger Filings shall be made simultaneously
with or as soon as practicable after the Closing (as defined in Section 3.10) in
accordance with Article III. The parties acknowledge that it is their mutual
desire and intent to consummate the Merger as soon as practicable after the date
hereof, and in any event within five (5) business days after the satisfaction,
or waiver, of all conditions to Closing set forth in Article VIII hereof,
subject to the terms and conditions hereof. Accordingly, subject to the
provisions hereof, the parties shall use all reasonable efforts to consummate,
as soon as practicable, the transactions contemplated by this Agreement in
accordance with Article VIII.
ARTICLE II
THE SURVIVING CORPORATION
Section 2.1. Certificate of Incorporation. The Certificate of
Incorporation of Merger Sub as in effect immediately prior to the Effective Time
shall be the Certificate of Incorporation of the Surviving Corporation after the
Effective Time, as the same may thereafter be amended in accordance with its
terms and as provided under the DGCL. The Certificate of Incorporation of the
Merger Sub is attached hereto on Schedule 2.1.
Section 2.2. Bylaws. The Bylaws of Merger Sub as in effect immediately
prior to the Effective Time shall be the Bylaws of the Surviving Corporation
after the Effective Time, as the same may thereafter be amended in accordance
with their terms and as provided by the Certificate of Incorporation of the
Surviving Corporation and DGCL. The Bylaws of the Merger Sub are attached hereto
on Schedule 2.2.
Section 2.3. Directors. The directors of the Surviving Corporation
shall be as designated in Schedule 2.3, and such directors shall serve in
accordance with the Bylaws of the Surviving Corporation until their respective
successors are duly elected or appointed and qualified.
Section 2.4. Officers. The officers of the Surviving Corporation shall
be as designated in Schedule 2.4, and such officers shall serve in accordance
with the Bylaws of the Surviving Corporation until their respective successors
are duly elected or appointed and qualified.
ARTICLE III
CONVERSION OF SHARES
Section 3.1. Effect on Capital Stock. Subject to the terms and
conditions of this Agreement, at the Effective Time, by virtue of the Merger and
without any action on the part of the Parent, Merger Sub or the Company:
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(a) Conversion of Securities. All of the Company's common
stock, $0.001 par value per share ("Company Common Stock"), issued and
outstanding immediately prior to the Effective Time (excluding any shares of the
Company Common Stock to be canceled pursuant to Section 3.1(b)) shall be
converted into the right to receive at Closing, in the aggregate, 885,714 shares
(as such number may be adjusted pursuant to Section 3.2 and as otherwise
provided in this Agreement, the "Merger Consideration") of issued and
outstanding common stock, par value $.01 per share, of Parent ("Parent Common
Stock"). The aggregate consideration payable to each Shareholder is set forth
opposite each Shareholder's name on Schedule 3.1(a), and, subject to the
provisions of the Agreement, shall be paid in full at Closing; provided,
however, that until satisfaction of the obligations of the Company, if any,
under Sections 3.2 and 10.1 hereof, the Parent shall retain in escrow an
aggregate of thirty percent (30%) of the Share Equivalent Transaction Value (as
defined in Section 3.2) in shares of Parent Common Stock (as such number may be
adjusted pursuant to Section 3.3 and as may be subject to forfeiture pursuant to
Article X, the "Retained Shares"). A number of the Retained Shares equal to
fifteen percent (15%) of the Share Equivalent Transaction Value are specifically
withheld solely for purposes of satisfying any indemnity obligations which may
be owed by the Shareholders pursuant to Section 10.1 hereof (the "Retained
Indemnity Shares"). The Retained Shares shall reduce the Parent Common Stock
distributed to the Shareholders at Closing on a pro-rata basis according to the
percentage of the total Merger Consideration being received by each Shareholder.
The Retained Shares shall be subsequently distributed among the Shareholders and
Parent in accordance with the terms of Sections 3.2 and 10.4 hereof.
(b) Cancellation. Each share of Company Common Stock held in
the treasury of the Company and each share of Company Common Stock held by any
direct or indirect wholly owned Subsidiary of the Company, if any, immediately
prior to the Effective Time shall, by virtue of the Merger and without any
action on the part of the holder thereof, cease to be outstanding, be canceled
and retired without payment of any consideration therefor and cease to exist.
(c) Capital Stock of Merger Sub. Each share of common stock,
par value $.01 per share, of Merger Sub ("Merger Sub Common Stock") issued and
outstanding immediately prior to the Effective Time shall remain issued and
outstanding.
(d) Adjustments to Parent Common Stock. The number of shares
of Parent Common Stock constituting the Merger Consideration shall be
appropriately adjusted to reflect fully the effect of any stock split, reverse
split, stock dividend (including any dividend of securities convertible into
Parent Common Stock), reorganization, reclassification, recapitalization or
other similar change with respect to Parent Common Stock occurring (including
the record date thereof) after the date hereof and prior to the Effective Time.
Section 3.2. Adjustments to Merger Consideration.
(a) The capitalized terms used in this Section shall have
the following meanings:
3
"Adjustment Amount," which may be a positive or negative
number, equals (i) the Adjustment Percentage Ratio times the Share Equivalent
Transaction Value. The Adjustment Amount, however, is limited to no more than
positive fifteen percent (15%) of the Share Equivalent Transaction Value, and to
no less than negative fifteen percent (15%) of the Share Equivalent Transaction
Value.
"Adjustment Percentage Ratio," which may be a positive or
negative number, is equal to (i) Management Fee Contribution Margin minus
$988,000, divided by (ii) $988,000.
"Company Existing Practices" means the practices of all
individual physicians which the Company managed as of the Closing Date (as
defined in Section 3.9) and listed on Exhibit B attached hereto.
"Determination Period" means the eighteen (18) month period
beginning on July 1, 1999 and ending on December 31, 2000.
"Existing Management Agreements" means all Management
Agreements relating to Company Existing Practices and listed on Exhibit C
attached hereto.
"Management Fee Contribution Margin" or "MFCM" means an amount
equal to the aggregate of all Service Fees (as such term is defined in each of
the Existing Management Agreements) earned in accordance with GAAP from the
Company Existing Practices under the Existing Management Agreements during the
Determination Period, regardless of the party to whom such Service Fees are
payable, less the Regional Expenses (as hereinafter defined). MFCM shall be
calculated in accordance with methodology set forth in the schedule attached
hereto as Exhibit D, with the revenues and expenses included in the calculation
to be calculated in accordance with GAAP. In addition, MFCM shall be calculated
and stated on an annualized basis, but only after subtracting the aggregate
Service Fees during the Determination Period that are directly related to
ancillary services added to the Company Existing Practices by Parent or Merger
Sub (excluding those ancillary services identified on Schedule 3.2(a) hereto).
The specific Regional Expenses that are directly related to such ancillary
services added to the Company Existing Practices by Parent or Merger Sub
(excluding those ancillary services identified on Schedule 3.2(a) hereto) shall
not be deducted in calculating MFCM. Notwithstanding any provision of this
Section 3.2 or any other provision of this Agreement, appropriate adjustments
shall be made in calculating MFCM to ensure that MFCM is not decreased by (i)
any adjustments to the Balance Sheet (as hereinafter defined) accounts for
events occurring prior to June 30, 1999 or after December 31, 2000 or (ii) any
adjustments which affect the calculation of Net Working Capital (as defined in
Section 7.12).
4
"Regional Expenses" shall include all the actual expenses
incurred to operate or manage the Company Existing Practices that are not Clinic
and Provider Expenses (as such terms are defined in each of the Existing
Management Agreements). However, during the Determination Period, for the
purpose of calculating the Adjustment Percentage Ratio and MFCM, the Regional
Expenses shall only include salaries and wages and related benefits of the
regional controller, accountant, and regional administrator and the following
expenses related to the regional corporate office: rent, utilities, insurance,
legal, professional and consulting services, computer services, travel,
maintenance and repairs, telephone, postage, printing and other related charges,
leasing of office equipment, supplies, parking, outside contractors, bank
service charges, property taxes, professional license fees and dues and
employment fees; provided, however, that for purposes of calculating the
Adjustment Percentage Ratio and MFCM, Regional Expenses shall not exceed
$246,600 per annum. In accordance with the foregoing, Regional Expenses shall
not include (a) amortization expenses related to the acquisition of the Company
Existing Practices, (b) depreciation expenses related to the Company Existing
Practices, (c) the salaries and benefits of the Parent executive officers,
defined as President, Chief Executive Officer, Chief Financial Officer, Chief
Operating Officer and/or Vice President of Operations and Chief Development
Officer, (d) the salaries and benefits of the Regional Vice Presidents of
Development, and Parent business development expenses of affiliating with other
established physician practices, (e) interest expense, and (f) income taxes of
Syntera, Parent or Merger Sub.
"Replacement Promissory Note" means that certain promissory
note, as hereafter amended, substituted or replaced, executed by Merger Sub at
the Closing, payable to American Physicians Service Group, Inc., a Texas
corporation ("APS"), attached hereto as Exhibit E, replacing all outstanding
amounts under that certain original promissory note (the "Original Promissory
Note") in the maximum principal amount of $3,000,000, dated November 1, 1998.
"Share Equivalent Transaction Value" is equal to (i) 885,714,
plus (ii) the outstanding amount under the Replacement Promissory Note
immediately following the Closing divided by $7.00.
(b) On December 31, 2000 (the "Calculation Date"), Parent
shall cause the Surviving Corporation to calculate MFCM, the Adjustment
Percentage Ratio and the Adjustment Amount (collectively, the "Adjustment
Calculations"). Within ninety (90) days following the Calculation Date, Parent
shall deliver to each of the Shareholders a copy of the Adjustment Calculations,
and a clear written statement setting forth with reasonable specificity the
Adjustment Calculations and the values, procedures and any assumptions used in
obtaining the Adjustment Calculations. The Shareholders shall have 15 days to
object in writing to the Adjustment Calculations, setting forth with reasonable
specificity any objections. If Shareholders holding, in the aggregate, at least
25% of the previously distributed portion of the Merger Consideration do not
object prior to the expiration of such 15 day period, then the Adjustment
Calculations shall be binding on all parties. If Shareholders holding, in the
aggregate, at least 25% of the previously distributed portion of the Merger
Consideration object prior to the expiration of such 15 day period (the
"Objecting Shareholders"), then all the Shareholders and Parent shall negotiate
in good faith and
5
attempt to resolve the disagreement. Should such negotiations not result in a
unanimous agreement within one hundred twenty (120) days following the
Calculation Date, then the matter shall be submitted to a big five independent
accounting firm (other than the auditors of Parent, the Surviving Corporation,
or APS at the time of such dispute) mutually acceptable to the Objecting
Shareholders and Parent (a "Neutral Auditor"); provided that both Parent and the
Objecting Shareholders place in escrow cash equal to one-half of the estimated
fees of the Neutral Auditor pending the outcome of the disagreement. If the
Objecting Shareholders and Parent are unable to agree on the Neutral Auditor,
then the Objecting Shareholders and Parent shall request the American
Arbitration Association to appoint the Neutral Auditor. The Neutral Auditor will
deliver to all of the Shareholders and Parent a written determination (such
determination to include a worksheet setting forth all material calculations
used in arriving at such determination) of the disputed items within sixty (60)
days of receipt of the disputed items, which determination shall be final,
binding and conclusive. If the Neutral Auditor's determination of the Adjustment
Amount multiplied by $7 (the "Dollar Adjustment Amount") is within $25,000 of
Parent's calculation of the Dollar Adjustment Amount (whether the difference is
positive or negative), all fees and expenses relating to appointment of the
Neutral Auditor and the work, if any, to be performed by the Neutral Auditor
will be borne by the Objecting Shareholders (or, if APS is one of the Objecting
Shareholders, by APS). If the difference between the Neutral Auditor's
determination of the Dollar Adjustment Amount and Parent's calculation of the
Dollar Adjustment Amount is greater than $25,000, but less than or equal to
$100,000 (whether the difference is positive or negative), all fees and expenses
relating to appointment of the Neutral Auditor and the work, if any, to be
performed by the Neutral Auditor will be borne half by the Objecting
Shareholders (or, if APS is one of the Objecting Shareholders, by APS) and half
by Parent. If the difference between the Neutral Auditor's determination of the
Dollar Adjustment Amount and Parent's calculation of the Dollar Adjustment
Amount is greater than $100,000 (whether the difference is positive or
negative), all fees and expenses relating to appointment of the Neutral Auditor
and the work, if any, to be performed by the Neutral Auditor will be borne
exclusively by Parent. The Adjustment Calculations in this Section 3.2 are made
independent of the ownership of the Surviving Corporation after Closing.
(c) Upon the later to occur of (i) June 30, 2001 or (ii) ten
(10) days following agreement on or delivery of the final, binding and
conclusive Adjustment Calculations (the "Distribution Date"), Parent shall
promptly distribute to the Shareholders from escrow that number of Retained
Shares equal to (i) the agreed upon or conclusively determined Adjustment Amount
(which may be positive or negative), plus (ii) 30% of the Share Equivalent
Transaction Value (collectively, the amounts in clauses (i) and (ii) are
referred to as the "Earnout Distribution"), minus (iii) all Final Suspended
Indemnified Amounts and Pending Indemnified Amounts (as such terms are defined
in Section 10.4) that are or may become payable by the Shareholders, in each
case divided by 7; provided, however, that in no event may the sum of clauses
(i) through (iii) be negative and; provided, further, that if any Shareholder
exchanges shares of Parent Common Stock to APS prior to the Distribution Date
pursuant to the terms of the Share Exchange Agreements (as hereinafter defined),
APS shall be entitled to receive the Shareholder's proportionate share of the
Retained Shares. Any and all of the Retained Shares that are not distributed to
the Shareholders on the Distribution Date shall be distributed to Parent, except
for that number of Retained Shares which
6
may reasonably be necessary to satisfy Pending Indemnified Amounts (such shares
to be distributed to the appropriate party or parties upon final determination
of the Pending Indemnified Amounts).
(d) All share amounts and related share values referred to in
this Section shall be appropriately adjusted upon the occurrence of any of the
events described in Section 3.1(d).
Section 3.3. Anti-Dilution. If, during the Determination Period, Parent
issues any one or more voting equity securities, or any other securities
convertible into or exchangeable for any voting equity securities (the "New
Securities"), at a price (the "Dilution Price") of less than $7.00 per share,
then promptly thereafter Parent shall issue to the Shareholders the number of
additional shares of Parent Common Stock, without requiring or receiving any
consideration therefore (the "Anti-Dilution Shares"), equal to (a) the number of
shares of Merger Consideration multiplied by 7 and divided by the Dilution
Price, minus (b) the number of shares of Merger Consideration. In determining
the price at which New Securities have been issued, the per share cash amount
received by Parent in return for the New Securities shall be used, or, if the
issuance was not wholly for cash, the per share value expressly assigned in any
document or agreement governing the issuance shall be used, or, if no such
document or agreement exists, the per share value determined in good faith by
the Board of Directors of Parent shall be used. For purposes of this
calculation, if Parent issues New Securities for less than $5.00, the Dilution
Price shall be deemed to equal $5.00 per share. Seventy percent (70%) of the
Anti-Dilution Shares shall be issued to the Shareholders on a pro rata basis
according to the amount of Merger Consideration received by each Shareholder.
Thirty percent (30%) of the Anti-Dilution Shares shall be retained as part of
the Retained Shares and distributed in accordance with Sections 3.2 and 10.1
hereof. All share amounts and related share values referred to in this Section
shall be appropriately adjusted upon the occurrence of any of the events
described in Section 3.1(d).
Section 3.4. Exchange of Certificates. Immediately after the Effective
Time, Parent will deliver to each Shareholder the Merger Consideration due to
the Shareholder, upon surrender by the Shareholder of a certificate or
certificates which immediately prior to the Effective Time represented
outstanding shares of Company Common Stock (the "Certificates") for cancellation
together with such other customary documents as may be required.
Section 3.5. Stock Transfer Books. At the Effective Time, the stock
transfer books of the Company shall be closed, and there shall be no further
registration of transfers of the Company Common Stock thereafter on the records
of the Company.
Section 3.6. No Further Ownership Rights in Company Common Stock. The
Merger Consideration delivered upon the surrender for exchange of shares of
Company Common Stock in accordance with the terms hereof shall be deemed to have
been issued in full satisfaction of all rights pertaining to such shares of
Company Common Stock, and there shall be no further registration of transfers on
the records of the Surviving Corporation of shares of Company Common Stock which
were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation for any
reason, they shall be canceled.
7
Section 3.7. Tax and Accounting Consequences. It is intended by the
parties hereto that the Merger shall constitute a reorganization within the
meaning of Section 368 of the Code. The parties hereto hereby adopt this
Agreement as a "plan of reorganization" within the meaning of Sections
1.368-2(g) and 1.368-3(a) of the United States Treasury Regulations.
Section 3.8. Taking of Necessary Action; Further Action. Each of
Parent, Merger Sub and the Company will take all such reasonable and lawful
action as may be necessary or appropriate in order to effectuate the Merger in
accordance with this Agreement as promptly as possible. If, at any time after
the Effective Time, any such further action is necessary or desirable to carry
out the purposes of this Agreement and to vest the Surviving Corporation with
full right, title and possession to all assets, property, rights, privileges,
powers and franchises of the Company and Merger Sub, the officers and directors
of the Company and Merger Sub in office immediately prior to the Effective Time
are fully authorized in the name of their respective corporations or otherwise
to take, and will take, all such lawful and necessary action.
Section 3.9. Closing. The closing (the "Closing") of the transactions
contemplated by this Agreement shall take place at a location mutually agreeable
to Parent and the Company in Houston, Texas, as promptly as practicable (but in
any event within five (5) business days) following the date on which the last of
the conditions set forth in Article VIII is fulfilled or waived, or at such
other time and place as Parent and the Company shall agree in writing. The date
on which the Closing occurs is referred to in this Agreement as the "Closing
Date."
ARTICLE IV
REPRESENTATIONS AND
WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub each represent and warrant to the Company as
follows:
Section 4.1. Organization and Qualification. Each of Parent and Merger
Sub is a corporation duly organized, validly existing and in good standing under
the laws of the state of its incorporation and has the requisite corporate power
and authority to own, lease and operate its assets and properties and to carry
on its business as it is now being conducted. Parent is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
in which the properties owned, leased, or operated by it or the nature of the
business conducted by it makes such qualification necessary, except where the
failure to be so qualified and in good standing would not have, or could not
reasonably be anticipated to have, individually or in the aggregate, a Material
Adverse Effect (as defined in Exhibit A). True, accurate and complete copies of
each of Parent's and Merger Sub's Certificate of Incorporation and Bylaws, each
as amended and in effect on the date hereof, have heretofore been delivered to
the Company. Merger Sub has not commenced business since its incorporation.
Merger Sub is not a party to or subject to any agreement or other instrument,
other than its Certificate of Incorporation, Bylaws, this Agreement and any
other agreements related to the Merger. Merger Sub does not own any assets
(tangible or intangible) other than the assets set
8
forth on Schedule 4.1 attached hereto and Merger Sub does not have any
liabilities, accrued, contingent or otherwise (known or unknown, asserted or
unasserted).
Section 4.2. Capitalization.
(a) The authorized capital stock of Parent consists of
50,000,000 shares of Parent Common Stock, 271,470 shares of Series A Redeemable
Common Stock, par value $.01 per share ("Redeemable Common Stock"), and
10,000,000 shares of Preferred Stock, par value $.01 per share ("Parent
Preferred Stock"). As of July 31, 1999, there were 600,897 shares of Parent
Common Stock issued and outstanding and 3,000,000 shares of Parent Preferred
Stock issued and outstanding, all of which will be free and clear of all
security interests, claims, liens or other encumbrances of any nature
whatsoever. Each issued and outstanding share of Parent Common Stock and Parent
Preferred Stock has been legally and validly issued and is fully paid and
nonassessable. As of the date hereof, except as set forth in Schedule 4.2(a), no
shares of capital stock of Parent are owned by Parent in treasury.
(b) Except as set forth in Section 4.2(a), and except as set
forth on Schedule 4.2(b), as of the date hereof, there are not outstanding (i)
any (A) shares of capital stock or other voting securities of Parent, (B)
securities of Parent convertible into or exchangeable for shares of capital
stock or other voting securities of Parent, (C) equity equivalents, interests in
the ownership or earnings, or other similar rights of or with respect to Parent,
(D) except for the obligations pursuant to this Agreement, subscriptions,
options, calls, contracts, commitments, understandings, restrictions,
arrangements, rights or warrants, including any right of conversion or exchange
under any outstanding security, debenture, instrument or other agreement,
obligating Parent to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of the capital stock of Parent or obligating the Parent
to grant, extend or enter into any such agreement or commitment, (ii) any
obligations of Parent to repurchase, redeem or otherwise acquire any securities
referred to in clauses (A) through (D) above, or (iii) any preemptive rights,
rights of first refusal, stock rights, co-sale or take along rights, or
registration rights with respect to any securities referred to in clauses (A)
through (D) above. Except as set forth on Schedule 4.2(b), to Parent's
knowledge, there are no voting trusts, proxies or other agreements or
understandings to which Parent or, to Parent's knowledge, any shareholder is a
party or is bound with respect to the voting of any shares of capital stock of
Parent. Parent shall have available to it at the Effective Time sufficient
shares of duly authorized Parent Common Stock to issue in exchange for the
outstanding Company Common Stock to be converted in the Merger pursuant to
Article III. Copies of the Certificate of Incorporation (certified by the
Secretary of State of Delaware) and Bylaws (certified by the Secretary of
Parent) of Parent, heretofore delivered to the Company, are true, correct and
complete and reflect all amendments thereto as of the date hereof.
(c) The authorized capital stock of Merger Sub consists of
1,000 shares of common stock, par value $.01 per share, of which 100 shares are
outstanding. All the outstanding shares of capital stock of Merger Sub are owned
directly by Parent.
9
(d) The Parent Common Stock to be issued to the Shareholders
or placed in escrow pursuant to this Agreement, when issued and delivered by
Parent or placed in escrow in accordance with the provisions of this Agreement,
will be validly issued and fully paid and nonassessable. Any and all preemptive
rights (whether arising contractually or otherwise), or similar rights to
subscribe for or acquire additional common stock, that are exercisable upon or
are triggered by the issuance of Parent Common Stock under this Agreement have
been waived in writing by the respective holders of such rights.
Section 4.3. Subsidiaries. Except as set forth on Schedule 4.3, Parent
does not have any Subsidiaries other than Merger Sub, nor does Parent hold any
equity interest in or control (directly or indirectly, through the ownership of
securities, by contract, by proxy, alone or in combination with others, or
otherwise) any corporation, limited liability company, partnership, business
organization or other Person. Schedule 4.3 sets forth the nature of Parent's
ownership interest (by number of class of securities or other interests) in each
of Parent's Subsidiaries.
Section 4.4. Authority; Non-Contravention; Approvals.
(a) Parent and Merger Sub each have full corporate power and
authority to execute and deliver this Agreement and, subject to the Parent
Required Statutory Approvals (as defined in Section 4.4(c)), to consummate the
transactions contemplated hereby. This Agreement has been approved by the Boards
of Directors of both Parent and Merger Sub and by Parent as the sole shareholder
of Merger Sub, and no other corporate proceedings on the part of Parent, Merger
Sub or either of their shareholders is necessary to authorize the execution and
delivery of this Agreement or the consummation by Parent and Merger Sub of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by each of Parent and Merger Sub, and, assuming the due authorization,
execution and delivery hereof by the Company, constitutes a valid and legally
binding agreement of each of Parent and Merger Sub enforceable against each of
them in accordance with its terms, except that such enforcement may be subject
to (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting or relating to enforcement of creditors' rights generally and (ii)
general equitable principles.
(b) The execution and delivery of this Agreement by each of
Parent and Merger Sub and the consummation by each of Parent and Merger Sub of
the transactions contemplated hereby in accordance with the terms hereof do not
and will not violate or result in a breach of any provision of, or constitute a
default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or acceleration
under, or result in the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of Parent or any of its
Subsidiaries under any of the terms, conditions or provisions of (i) the
respective charters or bylaws of Parent or any of its Subsidiaries, (ii) any
statute, law, ordinance, rule, regulation, judgment, decree, order, injunction,
writ, permit or license of any court or Governmental Authority applicable to
Parent or any of its Subsidiaries or any of their properties or assets (assuming
compliance with the matters referred to in Section 4.4(c)) or (iii) any note,
bond, mortgage, indenture, deed of trust,
10
license, franchise, permit, concession, contract, lease or other instrument,
obligation or agreement of any kind to which Parent or any of its Subsidiaries
is now a party or by which Parent or any of its Subsidiaries or any of their
respective properties or assets may be bound or affected except, in the case of
clauses (ii) and (iii), for matters as would not have, or could not reasonably
be anticipated to have, individually or in the aggregate, a Material Adverse
Effect or materially impair the ability of Parent and Merger Sub to consummate
the transactions contemplated by this Agreement.
(c) Except for the making of the Merger Filings in connection
with the Merger (the "Parent Required Statutory Approvals"), no declaration,
filing or registration with, or notice to, or authorization, consent or approval
of, any governmental or regulatory body or authority (including, without
limitation, federal and state securities' regulatory bodies) is necessary for
the execution and delivery of this Agreement by Parent or Merger Sub or the
consummation by Parent or Merger Sub of the transactions contemplated hereby,
other than such declarations, filings, registrations, notices, authorizations,
consents or approvals which, if not made or obtained, as the case may be, would
not, have, or could not reasonably be anticipated to have, individually or in
the aggregate, a Material Adverse Effect or materially impair the ability of
Parent or Merger Sub to consummate the transactions contemplated by this
Agreement.
Section 4.5. Parent Financial Information. Parent has furnished the
Company with copies of the unaudited balance sheet of Parent (the "Parent
Balance Sheet") as of December 31, 1998 (the "Parent's Balance Sheet Date"), and
the related statements of earnings for the two (2) years then ended
(collectively, the "Parent Financial Statements"), all of which are attached
hereto as part of Schedule 4.5. Except as described in the Parent Financial
Statements or on Schedule 4.5, the Parent Financial Statements are true and
accurate and fairly present the financial position of Parent as of the dates
thereof and the results of operations of Parent for the periods then ended, in
conformity with GAAP and on a basis consistent with prior periods. Except as
described on Schedule 4.5, all interim Parent Financial Statements provided to
the Company are true and accurate and fairly present or will present, as the
case may be, the financial position of Parent as of the dates thereof and the
results of operation of Parent for the periods then ended on a basis consistent
with prior periods.
Section 4.6. Absence of Undisclosed Liabilities. Except as disclosed in
Schedule 4.6, Parent has not incurred any liabilities or obligations (whether
absolute, accrued, contingent or otherwise) of any nature, except liabilities,
obligations or contingencies (i) which are accrued or reserved against the
Parent Financial Statements or (ii) which were incurred after December 31, 1998,
and were incurred in the ordinary course of business and consistent with past
practices.
Section 4.7. Absence of Certain Changes or Events. Other than as
contemplated by this Agreement or as set forth on Schedule 4.7, Parent has not,
since the date of the Parent's Balance Sheet Date:
11
(i) incurred any material obligation or liability
(absolute, accrued, contingent, insured or otherwise), except in
connection with the performance of this Agreement, other than in the
ordinary course of business;
(ii) discharged or satisfied any material lien or
encumbrance, or paid or satisfied any material obligation or liability
(absolute, accrued, contingent, insured or otherwise) other than (1)
liabilities shown or reflected on the Parent Balance Sheet or (2)
liabilities incurred since the date of the Parent Balance Sheet in the
ordinary course of business;
(iii) increased or established any reserve for taxes
or any other liability on its books or otherwise provided therefor,
except as may have been required due to ordinary income or operations
of Parent since the date of the Parent Balance Sheet;
(iv) mortgaged, pledged or subjected to any lien,
charge or other encumbrance any of the assets of Parent, tangible or
intangible, other than in the ordinary course of business;
(v) sold or transferred any of the assets of Parent,
or, to Parent's knowledge cancelled any debts or claims or waived any
rights, other than in the ordinary course of business;
(vi) granted any general or uniform increase in the
rates of pay of employees or any substantial increase in salary payable
or to become payable by Parent to any officer or employee, consultant
or agent (other than normal merit increases) or, by means of any bonus
or pension plan, contract or other commitment, increased the
compensation of any officer, employee, consultant or agent, other than
in the ordinary course of business;
(vii) except for the purchase of 230 shares of Parent
Common Stock which were placed in the Treasury and the redemption of
the Redeemable Common Stock, made any declaration setting aside or
payment of dividends or other distributions on or in respect of shares
of the capital stock of Parent, or any direct or indirect redemption,
retirement, purchase or other acquisition by Parent of any such shares;
(viii) changed the accounting methods followed by
Parent;
(ix) terminated (except through performance) or,
to Parent's knowledge, received notice of termination of any material
agreement or commitment;
(x) authorized any capital expenditures other
than in the ordinary course of business;
12
(xi) except for this Agreement and any other
agreement executed and delivered pursuant to this Agreement, entered
into any material transaction other than in the ordinary course of
business;
(xii) to the Parent's knowledge, experienced damage,
destruction or loss (whether or not covered by insurance) materially
and adversely affecting any of its properties, assets or business, or
experienced any other material adverse change in its financial
condition, assets, liabilities or business; or
(xiii) entered into any agreement to do or resulting
in any of the foregoing.
Section 4.8. Litigation. Except as set forth on Schedule 4.8 and except
for malpractice claims that have not been disclosed to Parent but are asserted
or may be asserted against the Parent Existing Practices, there are no claims,
actions, suits, proceedings (arbitration or otherwise) or investigations pending
or, to the knowledge of Parent or Merger Sub, threatened against Parent, Merger
Sub or the Parent Existing Practices (as hereinafter defined), at law or in
equity, in any court or before or by any Governmental Authority, and, to the
knowledge of Parent or Merger Sub, there are no, and have not been any, facts,
conditions or incidents that are reasonably likely to result in any such
actions, suits, proceedings (arbitration or otherwise) or investigations. To the
knowledge of Parent and Merger Sub, neither Parent nor Merger Sub is in default
in respect of any judgment, order, writ, injunction or decree of any court or
other Governmental Authority. Except as set forth on Schedule 4.8, to the
knowledge of Parent and Merger Sub, there have been no disciplinary, revocation
or suspension proceedings or similar types of claims, actions or proceedings,
hearings or investigations against Parent, Merger Sub or the Parent Existing
Practices, and neither Parent nor Merger Sub know of any facts, conditions or
incidents that may result in any such proceedings, claims, actions, hearings or
investigations.
Section 4.9. Accounts Receivable. The Parent Balance Sheet reflects the
amount, as of the Parent Balance Sheet Date and determined in conformity with
GAAP and on a basis consistent with the past practices employed by Parent, of
Parent's current accounts receivable, net of contractual adjustments arising out
of third-party payor arrangements and allowances for bad debts ("Parent Accounts
Receivable"). Schedule 4.9 reflects the amount of Parent Accounts Receivable as
of April 30, 1999. Except as set forth on Schedule 4.9, the Parent Accounts
Receivable (i) are valid, binding and legally enforceable obligations and are
owned by Parent free and clear of all liens and encumbrances and (ii) will not,
to Parent's knowledge, be subject to any offset, counterclaim or other adverse
claim or defense, except for contractual adjustments arising out of third party
payor arrangements. The Parent Accounts Receivable arose in the ordinary course
of business consistent with past practices. Since December 31, 1998, Parent has
not change any principle or practice with respect to the recordation of accounts
receivable, or any material collection, discount or write-off policy or
procedure, and Parent has not sold or transferred any Parent Accounts
Receivable. To Parent's knowledge, Parent is in substantial compliance with the
terms and conditions of such third-party payor arrangements.
13
Section 4.10. No Violation of Law; Compliance with Agreements.
(a) To the Parent's knowledge, Parent is not in violation of
and has not been given notice or been charged with any violation of, any law,
statute, order, rule, regulation, ordinance or judgment (including, without
limitation, any applicable Environmental Law, the Occupational Safety and Health
Act, the Americans with Disabilities Act and state and federal escheat laws) of
any governmental or regulatory body or authority. To the Parent's knowledge, no
investigation or review by any governmental or regulatory body or authority is
pending or threatened, nor has any governmental or regulatory body or authority
indicated an intention to conduct the same. Parent and the Parent Existing
Practices have all permits (including without limitation Environmental Permits),
licenses, franchises, variances, exemptions, orders and other governmental
authorizations, consents and approvals required or necessary to conduct its
business as presently conducted (collectively, the "Parent Permits"). To the
Parent's knowledge, Parent and the Parent Existing Practices are not in
violation of the terms of any Parent Permit. All such permits, licenses, orders
and approvals are in full force and effect, and no suspension or cancellation of
any of them is pending or, to the knowledge of Parent, threatened. Except as set
forth on Schedule 4.10, none of such permits, licenses, orders or approvals, and
no application for any of such permits, licenses, orders or approvals will be
adversely affected by the consummation of the transactions contemplated by this
Agreement. Parent and the Parent Existing Practices have not been disciplined,
sanctioned or excluded from the Medicare program and have not been subject to
any plan of correction imposed by any professional review body.
(b) To the Parent's knowledge, Parent is not in breach or
violation of or in default in the performance or observance of any term or
provision of, and no event has occurred which, with lapse of time or action by a
third party, could result in a default under, (a) the charter, bylaws or similar
organizational instruments of Parent or (b) any contract, commitment, agreement,
indenture, mortgage, loan agreement, note, lease, bond, license, approval or
other instrument to which Parent is a party or by which it is bound or to which
any of its property is subject.
Section 4.11. Insurance. Schedule 4.11 hereto sets forth a list of all
insurance policies owned by Parent or Merger Sub or by which Parent or Merger
Sub or either of their properties or assets are covered against present losses,
all of which are now in full force and effect. No insurance has been refused
with respect to any operations, properties or assets of Parent or Merger Sub nor
has coverage of any insurance been limited by any insurance carrier that has
carried, or received any application for, any such insurance during the last
three years. No insurance carrier has denied any claims made against any of the
policies listed on Schedule 4.11 hereto.
Section 4.12. Taxes.
(a) Except as set forth on Schedule 4.12, (i) Parent has (x)
duly filed (or there has been filed on its behalf) with the appropriate taxing
authorities all Tax Returns required to be filed by it on or prior to the date
hereof, and (y) duly paid in full or made adequate provision therefor on its
financial statements in accordance with GAAP (or there has been paid or adequate
provision has
14
been made on its behalf) for the payment of all Taxes for all periods ending
through the date hereof; (ii) all such Tax Returns filed by or on behalf of
Parent are true, correct and complete in all material respects; (iii) Parent is
not the beneficiary of any extension of time within which to file any Tax
Return; (iv) no claim has ever been made by any authority in a jurisdiction
where Parent does not file Tax Returns that it is or may be subject to taxation
by that jurisdiction; (v) the liabilities and reserves for Taxes reflected in
the most recent balance sheet included in Parent Financial Statements to cover
all Taxes for all periods ending at or prior to the date of such balance sheet
have been properly determined in accordance with GAAP, and there is no material
liability for Taxes for any period beginning after such date other than Taxes
arising in the ordinary course of business; (vi) there are no liens for Taxes
upon any property or assets of Parent, except for liens for Taxes not yet due;
(vii) Parent has not made any change in accounting methods since December 31,
1998; (viii) Parent has not received a ruling from any taxing authority or
signed an agreement with any taxing authority; (ix) Parent has complied in all
respects with all applicable laws, rules and regulations relating to the payment
and withholding of Taxes (including, without limitation, withholding of Taxes
pursuant to Sections 1441 and 1442 of the Code, as amended or similar provisions
under any foreign laws) and has, within the time and the manner prescribed by
law, withheld and paid over to the appropriate taxing authority all amounts
required to be so withheld and paid over under all applicable laws in connection
with amounts paid or owing to any employee, independent contractor, creditor,
stockholder or other third party; (x) no federal, state, local or foreign audits
or other administrative proceedings or court proceedings are presently pending
with regard to any Taxes or Tax Returns of Parent, and, as of the date of this
Agreement, Parent has not received a written notice of any pending audits or
proceedings; (xi) no shareholder or director or officer (or employee responsible
for Tax matters) of Parent expects any authority to assess any additional Taxes
for any period for which Tax Returns have been filed; (xii) the federal income
Tax Returns of Parent have not been examined by the Internal Revenue Service
("IRS"); (xiii) no adjustments or deficiencies relating to Tax Returns of Parent
have been proposed, asserted or assessed by any taxing authority, except for
such adjustments or deficiencies which have been fully paid or finally settled;
and (xiv) Parent has delivered to the Company true, correct and complete copies
of all federal income Tax Returns, examination reports, and statements of
deficiencies assessed against or agreed to by Parent or Merger Sub since
December 31, 1997.
(b) There are no outstanding requests, agreements, consents or
waivers to extend the statute of limitations applicable to the assessment of any
Taxes or deficiencies against Parent, and no power of attorney granted by Parent
with respect to any Taxes is currently in force. Parent is not a party to any
agreement providing for the allocation or sharing of Taxes. Parent has not, with
regard to any assets or property held, acquired or to be acquired by it, filed a
consent to the application of Section 341(f) of the Code, or agreed to have
Section 341(f)(2) of the Code apply to any disposition of a subsection (f) asset
(as such term is defined in Section 341(f)(4) of the Code) owned by Parent.
Parent (i) has not been a member of an affiliate group filing a consolidated
federal income Tax Return (other than a group the common parent of which was
Parent) and (ii) has no liability for Taxes of any person (other than any of
Parent and its Subsidiaries) under Section 1.1502-6 of the United States
Treasury Regulations (or any similar provision of state, local or foreign law),
as a transferee or successor, by contract, or otherwise.
15
Section 4.13. Employee Benefit Plans.
(a) Each Parent Plan and each Parent Benefit Program (as such
terms are defined below) is listed on Schedule 4.13 hereto. No Parent Plan or
Parent Benefit Program is or has been (i) covered by Title IV of Employer
Retirement Income Security Act of 1974, as amended ("ERISA"), (ii) subject to
the minimum funding requirements of Section 412 of the Code or (iii) a
"multi-employer plan" as defined in Section 3(37) of ERISA, nor has Parent
contributed to, or ever had any obligation to contribute to, any multi-employer
plan. Each Parent Plan and Parent Benefit Program intended to be qualified under
Section 401(a) of the Code is designated as a tax-qualified plan on Schedule
4.13 and is so qualified. No Parent Plan or Parent Benefit Program provides for
any retiree health benefits for any employees or dependents of Parent other than
as required by COBRA (as hereinafter defined). There are no claims pending with
respect to, or under, any Parent Plan or any Parent Benefit Program, other than
routine claims for benefits, and there are no disputes or litigation pending or,
to the knowledge of Parent, threatened, with respect to any such Parent Plans or
Parent Benefit Programs.
(b) Each Parent Plan and Parent Benefit Program has been
maintained and administered in compliance with its terms and in accordance with
all applicable laws, rules and regulations. Parent has no commitment or
obligation to establish or adopt any new or additional Parent Plans or Parent
Benefit Programs or to increase the benefits under any existing Parent Plan or
Parent Benefit Program.
(c) Except as set forth in Schedule 4.13, neither the
execution and delivery of this Agreement, nor the consummation of the
transactions contemplated hereby will (i) result in any payment to be made by
Parent, including, without limitation, severance, unemployment compensation,
golden parachute (defined in Section 280G of the Code) or otherwise, becoming
due to any employee of Parent, or (ii) increase any benefits otherwise payable
under any Parent Plan or any Parent Benefit Program.
(d) For purposes of this Agreement, "Parent Benefit Program"
means any plan, policy, contract, program, commitment or arrangement providing
for bonuses, deferred compensation, retirement payments, profit sharing,
incentive pay, commissions, hospitalization or medical expenses or insurance or
any other benefits for any officer, consultant, director, annuitant, employee or
independent contractor of the Parent as such or members of their families (other
than directors' and officers' liability policies), whether or not insured. For
purposes of this Agreement, "Company Plan" means an "employee benefit plan" (as
defined in Section 3(3) of ERISA) which is or has been established or
maintained, or to which contributions are or have been made, by the Parent or by
any trade or business, whether or not incorporated, which, together with the
Parent, is under common control, as described in Section 414(b) or (c) of the
Code.
Section 4.14. Employee and Labor Matters.
16
(a) Except as set forth on Schedule 4.14, Parent is not a
party to or bound by any written employment agreements or commitments, other
than on an at-will basis. Parent is in compliance with all applicable laws
respecting the employment and employment practices, terms and conditions of
employment and wages and hours of its employees and is not engaged in any unfair
labor practice. All employees of Parent who work in the United States are
lawfully authorized to work in the United States according to federal
immigration laws. There is no labor strike or labor disturbance pending or, to
the knowledge of Parent, threatened against Parent with respect to the Business
and, during the past five years, Parent has not experienced a work stoppage.
(b) Except as set forth on Schedule 4.14, (i) Parent is not a
party to or bound by the terms of any collective bargaining agreement or other
union contract applicable to any employee of Parent and no such agreement or
contract has been requested by any employee or group of employees of Parent, nor
has there been any discussion with respect thereto by management of Parent with
any employees of Parent, (ii) Parent is not aware of any union organizing
activities or proceedings involving, or any pending petitions for recognition
of, a labor union or association as the exclusive bargaining agent for, or where
the purpose is to organize, any group or groups of employees of Parent, or (iii)
there is not currently pending, with regard to any of its facilities, any
proceeding before the National Labor Relations Board, wherein any labor
organization is seeking representation of any employees of Parent.
Section 4.15. Environmental Matters. Without in any manner limiting
any other representations and warranties set forth in this Agreement:
(a) Neither Parent nor any of its Business Facilities is in
violation of, or has violated, or has been or is in non-compliance with, any
Environmental Laws, including but not limited to in connection with the
ownership, use, maintenance or operation of, or conduct of the business of
Parent or any of its Business Facilities.
(b) Without in any manner limiting the generality of (a)above:
(i) Except in compliance with Environmental Laws
(including, without limitation, by obtaining necessary Environmental
Permits), no Materials of Environmental Concern (as defined in Exhibit
A) have been used, generated, stored, treated, or disposed of, or in
any other way released (and no release is threatened), on, under or
about any Business Facility (as defined in Exhibit A) or transferred or
transported to or from any Business Facility.
(ii) Parent and all of its Business Facilities have
and have timely filed applications for renewal of all Environmental
Permits and Parent and its Business Facilities are in compliance with
all terms and conditions of such Environmental Permits;
(iii) There are no Materials of Environmental Concern
on any Business Facility of Parent exceeding any standard or limitation
established, published or promulgated
17
pursuant to Environmental Laws,
or which would require reporting to any Governmental Authority or
Remediation to comply with Environmental Laws (as defined in Exhibit
A);
(iv) To the knowledge of Parent, none of the off-site
locations where Materials of Environmental Concern generated from any
Business Facility of Parent or for which Parent has arranged for their
disposal, treatment or application, has been nominated or identified as
a facility which is subject to an existing or potential claim under
Environmental Laws which could be expected to result in an
Environmental Claim against Parent; and
(v) No current Business Facility of Parent contains
any asbestos containing materials which cannot be managed in place
without air monitoring, removal or encapsulation and which is not
managed under and in compliance with an operations and maintenance
program.
For purposes of this Section, "Parent" shall include any Entity which is, in
whole or in part, a predecessor of Parent and all of its former Subsidiaries and
their predecessors.
Section 4.16. Non-Competition Agreements. Except as set forth on
Schedule 4.16, neither Parent nor Merger Sub is a party to any agreement which
purports to restrict or prohibit either of them from, directly or indirectly,
engaging in any business currently engaged in by Parent. To Parent's knowledge,
none of Parent's or Merger Sub's shareholders, officers, directors, or key
employees is a party to any agreement which, by virtue of such person's
relationship with Parent, restricts Parent or any Subsidiary of Parent from,
directly or indirectly, engaging in any of the businesses described above.
Section 4.17. Title to Assets. Parent has good and marketable title in
fee simple to all its real property and good title to all its leasehold
interests and other properties, as reflected in the most recent balance sheet
included in the Parent Financial Statements, except for properties and assets
that have been disposed of in the ordinary course of business since the date of
the latest balance sheet included therein, free and clear of all mortgages,
liens, pledges, charges or encumbrances of any nature whatsoever, except (i)
liens for current taxes, payments of which are not yet delinquent, (ii) such
imperfections in title and easements and encumbrances, if any, as are not
substantial in character, amount or extent and do not detract from the value, or
interfere with the present use or marketability of the property subject thereto
or affected thereby, or otherwise impair Parent's business operations (in the
manner presently carried on by Parent), or (iii) any lien securing any debt or
obligation described on Schedule 4.17 which is expressly referenced as being
secured. To the Parent's knowledge, all leases under which Parent leases any
real property have been delivered to the Company and are in good standing, valid
and effective in accordance with their respective terms, and there is not, under
any of such leases, any existing default or event which with notice or lapse of
time or both would become a default by or on behalf of Parent or its
Subsidiaries, or by or on behalf of any third party.
18
Section 4.18. Contracts. Except as set forth on Schedule 4.18, Parent
and Merger Sub have each performed in all material respects all of the
obligations required to be performed by it under each contract, agreement, plan
or commitment to which it is a party, including timely paying all interest on
its debt as such interest has become due and payable. Except as set forth on
Schedule 4.18, there are no counterclaims or offsets under any of such
contracts, agreements, plans or commitments.
Section 4.19. Brokers and Finders. Parent has not entered into any
contract, arrangement or understanding with any person or firm which may result
in the obligation of Parent to pay any finder's fees, brokerage or agent
commissions or other like payments in connection with the transactions
contemplated hereby. There is no claim for payment by Parent of any investment
banking fees, finder's fees, brokerage or agent commissions or other like
payments in connection with the negotiations leading to this Agreement or the
consummation of the transactions contemplated hereby.
Section 4.20. Intellectual Property. Parent has rights to use, whether
through ownership, licensing or otherwise, all patents, trademarks, service
marks, trade names, copyrights, software, trade secrets and other proprietary
rights and processes that are material to its business as now conducted
(collectively the "Parent Intellectual Property Rights"). Except as set forth on
Schedule 4.20, Parent does not own any patents. Parent has no knowledge of any
infringement by any other person of any of Parent Intellectual Property Rights,
and Parent has not entered into any agreement to indemnify any other party
against any charge of infringement of any of Parent Intellectual Property
Rights. Parent has not and does not violate or infringe any intellectual
property right of any other person, and Parent has not received any
communication alleging that it violates or infringes the intellectual property
right of any other person. Parent has not been sued for infringing any
intellectual property right of another person. There is no claim or demand of
any person pertaining to, or any proceeding which is pending or, to the
knowledge of Parent, threatened, that challenges the rights of Parent in respect
of any Parent Intellectual Property Rights, or that claims that any default
exists under any Parent Intellectual Property Rights. None of the Parent
Intellectual Property Rights is subject to any outstanding order, ruling,
decree, judgment or stipulation by or with any court, tribunal, arbitrator, or
other Governmental Authority.
Section 4.21. Relationships. Except as set forth on Schedule 4.21,
since January 1, 1998, Parent has not received notice from any customer,
supplier or any party to any Contract involving more than $50,000 annually with
Parent (each a "Parent Contract Party") that such customer, supplier or Parent
Contract Party intends to discontinue doing business with Parent, and since such
date, no customer, supplier or Parent Contract Party, has indicated any
intention (a) to terminate its existing business relationship with Parent or (b)
not to continue its business relationship with Parent, whether as a result of
the transactions contemplated hereby or otherwise. Except for the reorganization
of Parent on October 31, 1997, Parent has not entered into or participated in
any related party transaction during the past three years.
19
Section 4.22. Certain Payments. Neither Parent nor, to the Parent's
knowledge, any shareholder, officer, director or employee of Parent has paid or
received or caused to be paid or received, directly or indirectly, in connection
with the business of Parent (a) any bribe, kickback or other similar payment to
or from any domestic or foreign government or agency thereof or any other person
or (b) any contribution to any domestic or foreign political party or candidate
(other than from personal funds of such shareholder, officer, director or
employee not reimbursed by Parent or as permitted by applicable law).
Section 4.23. Books and Records. The corporate minute books and other
corporate records of Parent are correct and complete in all material respects
and the signatures appearing on all documents contained therein are the true
signatures of the person purporting to have signed the same. All actions
reflected in said books and records were duly and validly taken in compliance
with the laws of the applicable jurisdiction and no meeting of the board of
directors of Parent or any committee thereof has been held for which minutes
have been prepared and are not contained in the minute books. To the extent that
they exist, all personnel files, reports, strategic planning documents,
financial forecasts, accounting and tax records and all other records of every
type and description that relate to the business of Parent have been prepared
and maintained in accordance with good business practices and applicable laws
and regulations. All such books and records are located in the offices of Parent
or Parent Existing Practices.
Section 4.24. Condition and Sufficiency of Assets. Except for certain
practice management software, firmware, microprocessing chips and other data
processing devices and services which are in the process of being replaced, all
buildings, improvements and equipment owned or leased by Parent are structurally
sound, are in good operating condition and repair (subject to normal wear and
tear) and are adequate for the uses to which they are being put, and none of
such buildings, improvements or equipment is in need of maintenance or repairs
except for ordinary, routine maintenance and repairs that are not material in
nature or cost.
Section 4.25. Offering. Subject to the truth and accuracy of the
Investors' Certificates to be delivered by the Shareholders at Closing, the
offer and issuance of the Parent Common Stock as contemplated by this Agreement
is exempt from the registration requirements of the Securities Act and state
securities' laws, and neither Parent nor any agent acting on its behalf will
take any action hereafter that would cause the loss of such exemption.
Section 4.26. Staff Privileges. Each of the Parent Existing Practices
has staff privileges at one or more hospitals, and such staff privileges have
not been revoked, surrendered, suspended or terminated, and except for routine
recredentialing procedures, there are no disciplinary actions or other
proceedings pending or threatened that may result in any revocation, surrender,
suspension or termination of such staff privileges. In addition, to Parent's
knowledge, there are no, and have not been, any facts, conditions or incidents
that may result in any revocation, surrender, suspension or termination of such
staff privileges.
20
Section 4.27. Fraud and Abuse. To the knowledge of Parent, Parent and
all individual physician practices which Parent manages as of the Closing Date
(the "Parent Existing Practices") have not engaged in any activities which are
prohibited under ss.1320a-7b of Title 42 of the United States Code or the
regulations promulgated thereunder, or related state or local statutes or
regulations, or which are prohibited by rules of professional conduct,
including, but not limited to, the following: (i) knowingly and willfully making
or causing to be made a false statement or representation of a material fact in
any application for any benefit or payment; (ii) knowingly and willfully making
or causing to be made any false statement or representation of a material fact
for use in determining rights to any benefit or payment; (iii) any failure by a
claimant to disclose knowledge of the occurrence of any event affecting the
initial or continued right to any benefit or payment on its own behalf or on
behalf of another, with the intent to fraudulently secure such benefit; and (iv)
knowingly and willfully soliciting or receiving any remuneration (including any
kickback, bribe or rebate) directly or indirectly, overtly or covertly, in cash
or in kind, or offering to pay or receive such remuneration (A) in return for
referring an individual to a person for the furnishing or arranging for the
furnishing of any item or service for which payment may be made in whole or in
part by Medicare or Medicaid, or (B) in return for purchasing, leasing or
ordering or arranging for, or recommending, purchasing, leasing or ordering any
good, facility, service or item for which payment may be made in whole or in
part by Medicare or Medicaid.
Section 4.28. Medicare, Medicaid, and Other Third-Party Payor Payment
Liabilities. To the knowledge of Parent, Parent and the Parent Existing
Practices do not have any liabilities (i) to any third party fiscal intermediary
or carrier administering any state Medicaid program or the federal Medicare
program, (ii) directly to any state Medicaid or the federal Medicare program, or
(iii) to any other third party payor for the recoupment of any amounts
previously paid to Parent or any predecessor to Parent by any such third-party
fiscal intermediary, carrier, Medicaid program, Medicare program, or third party
payor which exceed, individually or in the aggregate, $100,000. There are no
pending or, to the actual knowledge of Parent, threatened actions by any third
party fiscal intermediary or carrier administering any state Medicaid or the
federal Medicare program, by the Department of Health and Human Services, any
state Medicaid agency, or any third party payor to suspend payments to Parent.
Neither Parent nor any licensed employee of Parent (other than a physician in a
Parent Existing Practice) has been convicted of, or pled guilty or nolo
contendere to, patient abuse or negligence, or any other Medicare or Medicaid
related offense, and none of the foregoing persons has committed any offense
which is reasonably likely to serve as the basis for suspension or exclusion
from the Medicare and Medicaid programs.
ARTICLE V
REPRESENTATIONS AND
WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Merger Sub as
follows:
Section 5.1. Organization and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Texas and has the
21
requisite corporate power and authority to own, lease and operate its assets and
properties and to carry on its business as it is now being conducted. The
Company is duly qualified to do business as a foreign corporation and is in good
standing in each jurisdiction in which the properties owned, leased, or operated
by it or the nature of the business conducted by it makes such qualification
necessary, except where the failure to be so qualified and in good standing
would not have, or could not reasonably be anticipated to have, individually or
in the aggregate, a Material Adverse Effect. True, accurate and complete copies
of the Company's Articles of Incorporation and Bylaws, each as amended and in
effect on the date hereof, have heretofore been delivered to Parent.
Section 5.2. Capitalization.
(a) The authorized capital stock of the Company consists of
51,000,000 shares of capital stock, being 50,000,000 of $0.001 par value common
stock and 1,000,000 of $0.001 par value serial senior preferred stock. As of the
date of this Agreement there are, and as of Closing there will be, 2,920,440
shares of Company Common Stock issued and outstanding and no other shares of
capital stock of the Company issued and outstanding. All of such issued and
outstanding shares of Company Common Stock are validly issued and are fully
paid, nonassessable and free of preemptive rights and are free and clear of all
restrictions, liens, claims and encumbrances. No Subsidiary of the Company holds
any shares of the capital stock of the Company.
(b) Except as set forth in Section 5.2(a), and except as set
forth on Schedule 5.2(b), as of the date hereof, there are not outstanding (i)
any (A) shares of capital stock or other voting securities of the Company, (B)
securities of the Company convertible into or exchangeable for shares of capital
stock or other voting securities of the Company, (C) equity equivalents,
interests in the ownership or earnings, or other similar rights of or with
respect to the Company, (D) except for the obligations pursuant to this
Agreement, subscriptions, options, calls, contracts, commitments,
understandings, restrictions, arrangements, rights or warrants, including any
right of conversion or exchange under any outstanding security, debenture,
instrument or other agreement, obligating the Company or (to the knowledge of
the Company) any Shareholder to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of the capital stock of the Company or
obligating the Company or (to the knowledge of the Company) any Shareholder to
grant, extend or enter into any such agreement or commitment, (ii) obligations
of the Company or (to the knowledge of the Company) any Shareholder to
repurchase, redeem or otherwise acquire any securities referred to in clauses
(A) through (D) above, or (iii) any preemptive rights, rights of first refusal,
stock rights, co-sale or take along rights, or registration rights with respect
to any securities referred to in clauses (A) through (D) above. Except as set
forth on Schedule 5.2(b), there are no voting trusts, proxies or other
agreements or understandings to which the Company or (to the knowledge of the
Company) any Shareholder is a party or is bound with respect to the voting of
any shares of capital stock of the Company.
Section 5.3. Subsidiaries. Company does not have any Subsidiaries, nor
does the Company hold any equity interest in or control (directly or indirectly,
through the ownership of securities, by
22
contract, by proxy, alone or in combination with others, or otherwise) any
corporation, limited liability company, partnership, business organization or
other Person.
Section 5.4. Authority; Non-Contravention; Approvals.
(a) The Company has full corporate power and authority to
execute and deliver this Agreement and, subject to the Company Required
Statutory Approvals (as defined in Section 5.4(c)), to consummate the
transactions contemplated hereby. This Agreement has been approved by the Board
of Directors of the Company and the Shareholders, and no other corporate
proceedings on the part of the Company or the Shareholders are necessary to
authorize the execution and delivery of this Agreement or the consummation by
the Company of the transactions contemplated hereby. This Agreement has been
duly executed and delivered by the Company, and, assuming the due authorization,
execution and delivery hereof by Parent and Merger Sub, constitutes a valid and
legally binding agreement of the Company, enforceable against the Company in
accordance with its terms, except that such enforcement may be subject to (i)
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting or relating to enforcement of creditors' rights generally and (ii)
general equitable principles.
(b) The execution and delivery of this Agreement by the
Company and the consummation by the Company of the transactions contemplated
hereby in accordance with the terms hereof do not and will not, to the Company's
knowledge, violate or result in a breach of any provision of, or constitute a
default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or acceleration
under, or result in the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of the Company under any of the
terms, conditions or provisions of (i) the Articles of Incorporation or Bylaws
of the Company, (ii) any statute, law, ordinance, rule, regulation, judgment,
decree, order, injunction, writ, permit or license of any court or Governmental
Authority applicable to the Company, or any of its respective properties or
assets (assuming compliance with the matters referred to in Section 5.4(c)), or
(iii) any note, bond, mortgage, indenture, deed of trust, license, franchise,
permit, concession, contract, lease or other instrument, obligation or agreement
of any kind to which the Company is now a party or by which the Company or any
of its respective properties or assets may be bound or affected except, in the
case of clauses (ii) and (iii), for matters as would not have, or could not
reasonably be anticipated to have, individually or in the aggregate, a Material
Adverse Effect or materially impair the ability of the Company to consummate the
transactions contemplated by this Agreement.
(c) Except for the Merger Filings in connection with the
Merger (the "Company Required Statutory Approvals"), no declaration, filing or
registration with, or notice to, or authorization, consent or approval of, any
governmental or regulatory body or authority (including, without limitation,
federal and state securities' regulatory bodies) is necessary for the execution
and delivery of this Agreement by the Company and the Shareholders or the
consummation by the Company and the Shareholders of the transactions
contemplated hereby, other than such declarations, filings, registrations,
notices, authorizations, consents or approvals which, if not made
23
or obtained, as the case may be, would not have, or could not reasonably be
anticipated to have, individually or in the aggregate, a Material Adverse Effect
or materially impair the ability of the Company to consummate the transactions
contemplated by this Agreement.
Section 5.5. Company Financial Information. The Company has furnished
Parent with copies of the unaudited balance sheet (the "Company Balance Sheet")
of the Company as of December 31, 1998 (the "Company's Balance Sheet Date"), and
the related statements of earnings for the two (2) years then ended
(collectively, the "Company Financial Statements"), all of which are attached
hereto as part of Schedule 5.5. Except as described on Schedule 5.5, the
Company's Financial Statements are true and accurate and fairly present the
financial position of the Company as of the dates thereof and the results of
operations of the Company for the periods then ended, in conformity with GAAP
and on a basis consistent with prior periods, except as otherwise noted therein.
Except as described on Schedule 5.5, all interim Financial Statements provided
to the Parent are true and accurate and fairly present or will present, as the
case may be, the financial position of the Company as of the dates thereof and
the results of operation of the Company for the periods then ended on a basis
consistent with prior periods.
Section 5.6. Absence of Undisclosed Liabilities. Except as disclosed in
Schedule 5.6, the Company has not incurred any liabilities or obligations
(whether absolute, accrued, contingent or otherwise) of any nature, except
liabilities, obligations or contingencies (i) which are accrued or reserved
against the Company Financial Statements or (ii) which were incurred after
December 31, 1998, and were incurred in the ordinary course of business and
consistent with past practices.
Section 5.7. Absence of Certain Changes or Events. Other than as
contemplated by this Agreement or as set forth on Schedule 5.7, the Company has
not, since the Company Balance Sheet Date:
(i) incurred any material obligation or liability
(absolute, accrued, contingent, insured or otherwise), except in
connection with the performance of this Agreement, other than in the
ordinary course of business;
(ii) discharged or satisfied any material lien or
encumbrance, or paid or satisfied any material obligation or liability
(absolute, accrued, contingent, insured or otherwise) other than (1)
liabilities shown or reflected on the Company Balance Sheet or (2)
liabilities incurred since the date of the Company Balance Sheet in the
ordinary course of business;
(iii) increased or established any reserve for taxes
or any other liability on its books or otherwise provided therefor,
except as may have been required due to ordinary income or operations
of the Company since the date of the Company Balance Sheet;
24
(iv) mortgaged, pledged or subjected to any lien,
charge or other encumbrance any of the assets of the Company, tangible
or intangible, other than in the ordinary course of business;
(v) sold or transferred any of the assets of the
Company or, to the Company's knowledge, cancelled any debts or claims
or waived any rights, other than in the ordinary course of business;
(vi) granted any general or uniform increase in the
rates of pay of employees or any substantial increase in salary payable
or to become payable by the Company to any officer or employee,
consultant or agent (other than normal merit increases) or, by means of
any bonus or pension plan, contract or other commitment, increased the
compensation of any officer, employee, consultant or agent, other than
in the ordinary course of business;
(vii) made any declaration, setting aside or payment
of dividends or other distributions on or in respect of shares of the
capital stock of the Company, or any direct or indirect redemption,
retirement, purchase or other acquisition by the Company of any such
shares;
(viii) changed the accounting methods followed by
the Company;
(ix) terminated (except through performance) or,
to the Company's knowledge, received notice of
termination of any material agreement or commitment;
(x) authorized any capital expenditures other
than in the ordinary course of business;
(xi) except for this Agreement and any other
agreement executed and delivered pursuant to this Agreement, entered
into any material transaction other than in the ordinary course of
business;
(xii) to the Company's knowledge, experienced damage,
destruction or loss (whether or not covered by insurance) materially
and adversely affecting any of its properties, assets or business, or
experienced any other material adverse change in its financial
condition, assets, liabilities or business; or
(xiii) entered into any agreement to do or
resulting in any of the foregoing.
Section 5.8. Litigation. Except as set forth on Schedule 5.8, and
except for malpractice claims that have not been disclosed to the Company but
are asserted or may be asserted against the Company Existing Practices, there
are no claims, actions, suits, proceedings (arbitration or otherwise) or
investigations pending or, to the Company's knowledge, threatened against the
25
Company or the Company Existing Practices, at law or in equity, in any court or
before or by any Governmental Authority, and, to the Company's knowledge, there
are no, and have not been any, facts, conditions or incidents that are
reasonably likely to result in any such actions, suits, proceedings (arbitration
or otherwise) or investigations. To the Company's knowledge, the Company and the
Company Existing Practices are not in default in respect of any judgment, order,
writ, injunction or decree of any court or other Governmental Authority. Except
as set forth on Schedule 5.8, to the knowledge of Company, there have been no
disciplinary, revocation or suspension proceedings or similar types of claims,
actions or proceedings, hearings or investigations against the Company and the
Company Existing Practices, and the Company does not know of any facts,
conditions or incidents that may result in any such proceedings, claims,
actions, hearings or investigations.
Section 5.9. Accounts Receivable. The Company Balance Sheet reflects
the amount, as of the Company Balance Sheet Date and determined in conformity
with GAAP and on a basis consistent with the past practices employed by the
Company, of the Company's and the Company Existing Practices current accounts
receivable, net of contractual adjustments arising out of third-party payor
arrangements and allowances for bad debts ("Company Accounts Receivable").
Schedule 5.9 reflects the amount of Company Accounts Receivable as of June 30,
1999. For all Company Accounts Receivable reflected on the Company Balance Sheet
there is a corresponding accounts receivable owed to the Company. As of the
Closing Date, (i) the Company knows of no reason that the Company Accounts
Receivable shall not be owned solely by the Company or (ii) the Company has a
security agreement with the Company Existing Practices pursuant to which the
Company Existing Practices have granted a security interest to the Company in
the Company Accounts Receivable in the amounts indicated in the Company Balance
Sheet which represent amounts owed from the Company Existing Practices for
services previously rendered. Except as set forth on Schedule 5.9, the Company
Accounts Receivable (i) are valid, binding and legally enforceable obligations
and are, subject to the preceding sentence, owned by the Company (or, prior to
the Closing Date, the Company Existing Practices) free and clear of all liens
and encumbrances, (ii) will not, to the Company's knowledge, be subject to any
offset, counterclaim or other adverse claim or defense, except for contractual
adjustments arising out of third party payor arrangements, and (iii) may, to the
extent permitted by law, be sold and transferred to the Parent. The Company
Accounts Receivable arose in the ordinary course of business consistent with
past practices. The Company maintains its accounting records in sufficient
detail to substantiate the Company Accounts Receivable reflected on the Company
Balance Sheet and has given and will give to Parent full and complete access to
those records, including the right to make copies therefrom. Since December 31,
1998, the Company has not changed any principle or practice with respect to the
recordation of accounts receivable, or any material collection, discount or
write-off policy or procedure, and the Company has not sold or transferred any
Company Accounts Receivable. To the Company's knowledge, the Company is in
substantial compliance with the terms and conditions of such third-party payor
arrangements.
Section 5.10. No Violation of Law; Compliance with Agreements.
26
(a) To the Company's knowledge, the Company is not in
violation of and has not been given notice or been charged with any violation
of, any law, statute, order, rule, regulation, ordinance or judgment (including,
without limitation, any applicable Environmental Law, the Occupational Safety
and Health Act, the Americans with Disabilities Act and state and federal
escheat laws) of any governmental or regulatory body or authority. To the
Company's knowledge, no investigation or review by any governmental or
regulatory body or authority is pending or threatened, nor has any governmental
or regulatory body or authority indicated an intention to conduct the same.
(b) Except as disclosed on Schedule 5.10(b), to the Company's
knowledge, the Company is not in breach or violation of or in default in the
performance or observance of any term or provision of, and no event has occurred
which, with lapse of time or action by a third party, could result in a default
under, (a) the charter, bylaws or similar organizational instruments of the
Company or (b) any contract, commitment, agreement, indenture, mortgage, loan
agreement, note, lease, bond, license, approval or other instrument to which the
Company is a party or by which it is bound or to which any of its property is
subject.
(c) The Company and the Company Existing Practices have all
permits (including without limitation Environmental Permits), licenses,
franchises, variances, exemptions, orders and other governmental authorizations,
consents and approvals required or necessary to conduct its business as
presently conducted (collectively, the "Company Permits"). To the Company's
knowledge, the Company and the Company Existing Practices are not in violation
of the terms of any Company Permit. All such permits, licenses, orders and
approvals are in full force and effect, and no suspension or cancellation of any
of them is pending or, to the knowledge of the Company, threatened. None of such
permits, licenses, orders or approvals, and no application for any of such
permits, licenses, orders or approvals will be adversely affected by the
consummation of the transactions contemplated by this Agreement. The Company and
(to the knowledge of the Company) the Company Existing Practices have not been
disciplined, sanctioned or excluded from the Medicare program and have not been
subject to any plan of correction imposed by any professional review body.
Section 5.11. Insurance. Schedule 5.11 hereto sets forth a list of all
insurance policies owned by the Company or by which the Company or any of its
properties or assets is covered against present losses, all of which are now in
full force and effect. No insurance has been refused with respect to any
operations, properties or assets of the Company nor has coverage of any
insurance been limited by any insurance carrier that has carried, or received
any application for, any such insurance during the last three years. No
insurance carrier has denied any claims made against any of the policies listed
on Schedule 5.11 hereto.
Section 5.12. Taxes.
(a) Except as set forth on Schedule 5.12, (i) the Company has
(x) duly filed (or there has been filed on its behalf) with the appropriate
taxing authorities all Tax Returns, required
27
to be filed by it on or prior to
the date hereof, and (y) duly paid in full or made adequate provision therefor
on its financial statements in accordance with GAAP (or, except as set forth on
Schedule 5.12, there has been paid or adequate provision has been made on its
behalf) for the payment of all Taxes) for all periods ending through the date
hereof; (ii) all such Tax Returns filed by or on behalf of the Company are true,
correct and complete in all material respects; (iii) the Company is not the
beneficiary of any extension of time within which to file any Tax Return; (iv)
no claim has ever been made by any authority in a jurisdiction where the Company
does not file Tax Returns that it is or may be subject to taxation by that
jurisdiction; (v) the liabilities and reserves for Taxes reflected in the most
recent balance sheet included in the Company Financial Statements to cover all
Taxes for all periods ending at or prior to the date of such balance sheet have
been properly determined in accordance with GAAP, and there is no material
liability for Taxes for any period beginning after such date other than Taxes
arising in the ordinary course of business; (vi) there are no liens for Taxes
upon any property or assets of the Company, except for liens for Taxes not yet
due; (vii) the Company has not made any change in accounting methods since
December 31, 1998; (viii) the Company has not received a ruling from any taxing
authority or signed an agreement with any taxing authority; (ix) the Company has
complied in all respects with all applicable laws, rules and regulations
relating to the payment and withholding of Taxes (including, without limitation,
withholding of Taxes pursuant to Sections 1441 and 1442 of the Code, as amended
or similar provisions under any foreign laws) and has, within the time and the
manner prescribed by law, withheld and paid over to the appropriate taxing
authority all amounts required to be so withheld and paid over under all
applicable laws in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder or other third party; (x) no
federal, state, local or foreign audits or other administrative proceedings or
court proceedings are presently pending with regard to any Taxes or Tax Returns
of the Company, and, as of the date of this Agreement, the Company has not
received a written notice of any pending audits or proceedings; (xi) no
shareholder or director or officer (or employee responsible for Tax matters) of
the Company expects any authority to assess any additional Taxes for any period
for which Tax Returns have been filed; (xii) the federal income Tax Returns of
the Company have not been examined by the IRS; (xiii) no adjustments or
deficiencies relating to Tax Returns of the Company have been proposed, asserted
or assessed by any taxing authority, except for such adjustments or deficiencies
which have been fully paid or finally settled; and (xiv) the Company has
delivered to the Parent true, correct and complete copies of all federal income
Tax Returns, examination reports, and statements of deficiencies assessed
against or agreed to by the Company since December 31, 1997.
28
(b) There are no outstanding requests, agreements, consents or
waivers to extend the statute of limitations applicable to the assessment of any
Taxes or deficiencies against the Company, and no power of attorney granted by
the Company with respect to any Taxes is currently in force. The Company is not
a party to any agreement providing for the allocation or sharing of Taxes. The
Company has not, with regard to any assets or property held, acquired or to be
acquired by it, filed a consent to the application of Section 341(f) of the
Code, or agreed to have Section 341(f)(2) of the Code apply to any disposition
of a subsection (f) asset (as such term is defined in Section 341(f)(4) of the
Code) owned by the Company. The Company (i) has not been a member of an
affiliate group filing a consolidated federal income Tax Return (other than a
group the common parent of which was the Company) and (ii) has no liability for
Taxes of any person (other than any of the Company and its Subsidiaries) under
Section 1.1502-6 of the United States Treasury Regulations (or any similar
provision of state, local or foreign law), as a transferee or successor, by
contract, or otherwise.
Section 5.13. Employee Benefit Plans.
(a) Each Company Plan and each Company Benefit Program (as
such terms are defined below) is listed on Schedule 5.13 hereto. Except as set
forth on Schedule 5.13, no Company Plan or Company Benefit Program is or has
been (i) covered by Title IV of ERISA, (ii) subject to the minimum funding
requirements of Section 412 of the Code or (iii) a "multi-employer plan" as
defined in Section 3(37) of ERISA, nor has the Company contributed to, or ever
had any obligation to contribute to, any multi-employer plan. Each Company Plan
and Company Benefit Program intended to be qualified under Section 401(a) of the
Code is designated as a tax-qualified plan on Schedule 5.13 and is so qualified.
No Company Plan or Company Benefit Program provides for any retiree health
benefits for any employees or dependents of the Company other than as required
by COBRA. There are no claims pending with respect to, or under, any Company
Plan or any Company Benefit Program, other than routine claims for benefits, and
there are no disputes or litigation pending or, to the knowledge of the Company,
threatened, with respect to any such Company Plans or Company Benefit Programs.
(b) The Company has heretofore delivered to Parent true
and correct copies of the following, if any:
(i) each Company Plan and each Company Benefit
Program listed on Schedule 5.13, all amendments thereto as of the date
hereof and all current summary plan descriptions provided to employees
regarding the Company Plans and Company Benefit Programs;
(ii) each trust agreement and annuity contract (or
any other funding instruments) pertaining to any of the Company Plans
or Company Benefit Programs, including all amendments to such documents
to the date hereof;
29
(iii) each management or employment contract or
contract for personal services and a complete description of any
understanding or commitment between the Company and any officer,
consultant, director, employee or independent contractor of the
Company; and
(iv) a complete description of each other plan,
policy, contract, program, commitment or arrangement providing for
bonuses, deferred compensation, retirement payments, profit sharing,
incentive pay, commissions, hospitalization or medical expenses or
insurance or any other benefits for any officer, consultant, director,
annuitant, employee or independent contractor of the Company as such or
members of their families (other than directors' and officers'
liability policies), whether or not insured (a "Company Benefit
Program"). For purposes of this Agreement, "Company Plan" means an
"employee benefit plan" (as defined in Section 3(3) of ERISA) which is
or has been established or maintained, or to which contributions are or
have been made, by the Company or by any trade or business, whether or
not incorporated, which, together with the Company, is under common
control, as described in Section 414(b) or (c) of the Code.
(c) Each Company Plan and Company Benefit Program has been
maintained and administered in compliance with its terms and in accordance with
all applicable laws, rules and regulations. The Company has no commitment or
obligation to establish or adopt any new or additional Company Plans or Company
Benefit Programs or to increase the benefits under any existing Company Plan or
Company Benefit Program.
(d) Except as set forth in Schedule 5.13, neither the
execution and delivery of this Agreement, nor the consummation of the
transactions contemplated hereby will (i) result in any payment to be made by
the Company, including, without limitation, severance, unemployment
compensation, golden parachute (defined in Section 280G of the Code) or
otherwise, becoming due to any employee of the Company, or (ii) increase any
benefits otherwise payable under any Company Plan or any Company Benefit
Program. The Company does not have any severance arrangements with any of its
employees as of the Closing Date.
Section 5.14. Employee and Labor Matters.
(a) The Company has provided Parent with a true and complete
list dated as of June 11, 1999 (the "Employee Schedule ") of all employees of
the Company listing the title or position held, base salary or wage rate and any
bonuses, commissions, profit sharing, the Company's vehicles, club memberships
or other compensation or perquisites payable, all employee benefits received by
such employees and any other material terms of any written agreement with the
Company. Except as set forth on Schedule 5.14, as of the date of this Agreement
and as of the Closing Date, the Company has not entered into any agreement or
agreements pursuant to which the combined annual payroll of the Company,
including projected pay increases, overtime and fringe benefit costs, required
to operate its business (including all administrative and support personnel)
would be greater than as listed on the Employee Schedule.
30
(b) Except as set forth on Schedule 5.14, the Company is not a
party to or bound by any written employment agreements or commitments, other
than on an at-will basis. The Company is in compliance with all applicable laws
respecting the employment and employment practices, terms and conditions of
employment and wages and hours of its employees and is not engaged in any unfair
labor practice. All employees of the Company who work in the United States are
lawfully authorized to work in the United States according to federal
immigration laws. There is no labor strike or labor disturbance pending or, to
the knowledge of the Company, threatened against the Company with respect to the
Business and, during the past five years, the Company has not experienced a work
stoppage.
(c) Except as set forth on Schedule 5.14, (i) the Company is
not a party to or bound by the terms of any collective bargaining agreement or
other union contract applicable to any employee of the Company and no such
agreement or contract has been requested by any employee or group of employees
of the Company, nor has there been any discussion with respect thereto by
management of the Company with any employees of the Company, (ii) the Company is
not aware of any union organizing activities or proceedings involving, or any
pending petitions for recognition of, a labor union or association as the
exclusive bargaining agent for, or where the purpose is to organize, any group
or groups of employees of the Company, or (iii) there is not currently pending,
with regard to any of its facilities, any proceeding before the National Labor
Relations Board, wherein any labor organization is seeking representation of any
employees of the Company.
Section 5.15. Environmental Matters. Without in any manner limiting
any other representations and warranties set forth in this Agreement:
(a) Neither the Company nor any of its Business Facilities is
in violation of, or has violated, or has been or is in non-compliance with, any
Environmental Laws, including but not limited to in connection with the
ownership, use, maintenance or operation of, or conduct of the business of the
Company or any of its Business Facilities.
(b) Without in any manner limiting the generality of (a) above:
(i) Except in compliance with Environmental Laws
(including, without limitation, by obtaining necessary Environmental
Permits), no Materials of Environmental Concern (as defined in Exhibit
A) have been used, generated, stored, treated, or disposed of, or in
any other way released (and no release is threatened), on, under or
about any Business Facility (as defined in Exhibit A) or transferred or
transported to or from any Business Facility.
(ii) The Company and all of its Business Facilities
have and have timely filed applications for renewal of all
Environmental Permits and the Company and its Business Facilities are
in compliance with all terms and conditions of such Environmental
Permits;
31
(iii) There are no Materials of Environmental Concern
on any Business Facility of the Company exceeding any standard or
limitation established, published or promulgated pursuant to
Environmental Laws, or which would require reporting to any
Governmental Authority or Remediation to comply with Environmental Laws
(as defined in Exhibit A);
(iv) To the knowledge of the Company, none of the
off-site locations where Materials of Environmental Concern generated
from any Business Facility of the Company or for which the Company has
arranged for their disposal, treatment or application, has been
nominated or identified as a facility which is subject to an existing
or potential claim under Environmental Laws which could be expected to
result in an Environmental Claim against the Company; and
(v) No current Business Facility of the Company
contains any asbestos containing materials which cannot be managed in
place without air monitoring, removal or encapsulation and which is not
managed under and in compliance with an operations and maintenance
program.
For purposes of this Section, the "Company" shall include any Entity which is,
in whole or in part, a predecessor of the Company and all of its former
Subsidiaries and their predecessors.
Section 5.16. Non-Competition Agreements. Except as set forth on
Schedule 5.16, and except as required by this Agreement, neither the Company nor
(to the Company's knowledge) any Shareholder is a party to any agreement which
purports to restrict or prohibit any of them from, directly or indirectly,
engaging in any business currently engaged in by the Company. To the Company's
knowledge, none of the Company's shareholders, officers, directors, or key
employees is a party to any agreement which, by virtue of such person's
relationship with the Company, restricts the Company or any Subsidiary of the
Company from, directly or indirectly, engaging in any of the businesses
described above.
Section 5.17. Title to Assets. The Company has good and marketable
title in fee simple to all its real property and good title to all its leasehold
interests and other properties, as reflected in the most recent balance sheet
included in the Company Financial Statements, except for properties and assets
that have been disposed of in the ordinary course of business since the date of
the latest balance sheet included therein, free and clear of all mortgages,
liens, pledges, charges or encumbrances of any nature whatsoever, except (i)
liens for current taxes, payments of which are not yet delinquent, (ii) such
imperfections in title and easements and encumbrances, if any, as are not
substantial in character, amount or extent and do not detract from the value, or
interfere with the present use or marketability of the property subject thereto
or affected thereby, or otherwise impair the Company's business operations (in
the manner presently carried on by the Company), or (iii) any lien securing any
debt or obligation described on Schedule 5.17 which is expressly referenced as
being secured. To the Company's knowledge, all leases under which the Company
32
leases any real property have been delivered to Parent and are in good standing,
valid and effective in accordance with their respective terms, and there is not,
under any of such leases, any existing default or event which with notice or
lapse of time or both would become a default by or on behalf of the Company or
its Subsidiaries, or by or on behalf of any third party.
Section 5.18. Contracts, Agreements, Plans and Commitments. Schedule
5.18 hereto sets forth a complete list of the following contracts, agreements,
plans and commitments (collectively, the "Contracts") to which the Company is a
party or by which the Company or any of its properties is bound as of the date
hereof:
(a) any contract, commitment or agreement that involves
aggregate expenditures by the Company of more than
$10,000 per year;
(b) any contract or agreement (including any such contracts or
agreements entered into with any Governmental Authority) relating to the
maintenance or operation of the business that involves aggregate expenditures by
the Company of more than $10,000;
(c) any indenture, loan agreement or note under which the
Company has outstanding indebtedness, obligations or
liabilities for borrowed money;
(d) any lease or sublease for the use or occupancy of
real property;
(e) any agreement that restricts the right of the Company
to engage in any type of business;
(f) any guarantee, direct or indirect, by any person of
any contract, lease or agreement entered into by the
Company;
(g) any partnership, joint venture or construction and
operation agreement;
(h) any agreement of surety, guarantee or indemnification
with respect to which the Company is the obligor, outside of the ordinary course
of business;
(i) any contract that requires the Company to pay for goods or
services substantially in excess of its estimated needs for such items or the
fair market value of such items;
(j) any contract, agreement, agreed order or consent agreement
that requires the Company to take any actions or incur expenses to remedy
non-compliance with any Environmental Law; and
(k) any other contract material to the Company or its
business.
33
True, correct and complete copies of the Contracts have been delivered to or
made available for inspection by Parent. All the Contracts (i) were duly and
validly executed and delivered by the Company and (to the knowledge of the
Company) the other parties thereto and (ii) are valid and in full force and
effect. Except as set forth on Schedule 5.18, the Company has performed all
material obligations required under the Contracts to have been performed by it
prior to the date hereof, including timely paying all interest on its debt as
such interest has become due and payable. Except as set forth on Schedule 5.18,
there are no counterclaims or offsets under any of the Contracts. The
consummation of the Merger will vest in the Survivor Corporation all rights and
benefits under the Contracts and the right to operate the Company's business and
assets under the terms of the Contracts in the manner currently operated and
used by the Company; provided, however, that the Company makes no such
representation regarding Contracts to which the Company Existing Practices are a
party. Schedule 5.18 does not include either amendments proposed by Parent to
the Company's Existing Management Agreements or the Share Exchange Agreements
expected to be executed by the physician owners of the Company Existing
Practices in replacement of the existing Share Exchange Agreements. The Company
has provided to Parent copies of all managed care contracts in its possession to
which the Company Existing Practices are parties. Except as set forth on
Schedule 5.18, there are no other side letters (except as contemplated by this
Agreement), oral agreements or any other agreements that conflict with the terms
of the Company's Existing Management Agreements. The Company has no knowledge of
any violation of any of the terms of such contracts by the Company Existing
Practices.
Section 5.19. Section 368 Representations.
(a) Except for those share exchange agreements described on
Schedule 5.19(a) (the "Share Exchange Agreements"), the Company is not aware of
any plan or intention by any Shareholder who is anticipated to receive 1% or
more of the total number of shares of Parent Common Stock to be issued pursuant
to the Merger to dispose of such shares.
(b) Neither Parent nor Merger Sub will assume any debts or
obligations of the holders of the Company Common Stock as part of the Merger.
(c) Except as described on Schedule 5.19(c), there have not
been any sales or redemptions of the Company's capital stock in contemplation of
the Merger.
(d) The Company and (to the Company's knowledge) the
Shareholders will pay their own expenses which are incurred in connection with
the Merger.
(e) The Company has not disposed of any assets (either as a
dividend or otherwise) constituting more than 10% of the fair market value of
all of its assets (ignoring any liabilities) at any time either during the past
twelve months or in contemplation of the Merger.
(f) The Company is not an investment company as defined in
Section 368(a)(2)(F)(iii) and (iv) of the Code.
34
(g) The Company is not under the jurisdiction of a court in a
Title 11 or similar case within the meaning of Section 368(a)(3)(A) of the Code.
Section 5.20. Brokers and Finders. The Company has not entered into any
contract, arrangement or understanding with any person or firm which may result
in the obligation of the Company to pay any finder's fees, brokerage or agent
commissions or other like payments in connection with the transactions
contemplated hereby. There is no claim for payment by the Company of any
investment banking fees, finder's fees, brokerage or agent commissions or other
like payments in connection with the negotiations leading to this Agreement or
the consummation of the transactions contemplated hereby.
Section 5.21. Intellectual Property. The Company has rights to use,
whether through ownership, licensing or otherwise, all patents, trademarks,
service marks, trade names, copyrights, software, trade secrets and other
proprietary rights and processes that are material to its business as now
conducted (collectively the "Company Intellectual Property Rights"). The Company
does not own any patents. The Company has no knowledge of any infringement by
any other person of any of the Company Intellectual Property Rights, and the
Company has not entered into any agreement to indemnify any other party against
any charge of infringement of any of the Company Intellectual Property Rights.
The Company has not and does not violate or infringe any intellectual property
right of any other person, and the Company has not received any communication
alleging that it violates or infringes the intellectual property right of any
other person. The Company has not been sued for infringing any intellectual
property right of another person. There is no claim or demand of any person
pertaining to, or any proceeding which is pending or, to the knowledge of the
Company, threatened, that challenges the rights of the Company in respect of any
Company Intellectual Property Rights, or that claims that any default exists
under any Company Intellectual Property Rights. To the Company's knowledge, no
Company Intellectual Property Right is subject to any outstanding order, ruling,
decree, judgment or stipulation by or with any court, tribunal, arbitrator, or
other Governmental Authority.
Section 5.22. Relationships. Since January 1, 1998, the Company has not
received notice from any customer, supplier or any party to any Contract
involving more than $15,000 annually with the Company (each a "Company Contract
Party") that such customer, supplier or Company Contract Party intends to
discontinue doing business with the Company, and since such date, no customer,
supplier or Company Contract Party, has indicated any intention (a) to terminate
its existing business relationship with the Company or (b) not to continue its
business relationship with the Company, whether as a result of the transactions
contemplated hereby or otherwise. The Company has not entered into or
participated in any related party transaction during the past three years.
Section 5.23. Certain Payments. Neither the Company nor, to the
Company's knowledge, any shareholder, officer, director or employee of the
Company has paid or received or caused to be paid or received, directly or
indirectly, in connection with the business of the Company (a) any bribe,
kickback or other similar payment to or from any domestic or foreign government
or agency thereof
35
or any other person or (b) any contribution to any domestic or foreign political
party or candidate (other than from personal funds of such shareholder, officer,
director or employee not reimbursed by the Company or as permitted by applicable
law).
Section 5.24. Books and Records. The corporate minute books, and other
corporate records of the Company are correct and complete in all material
respects and the signatures appearing on all documents contained therein are the
true signatures of the person purporting to have signed the same. All actions
reflected in said books and records were duly and validly taken in compliance
with the laws of the applicable jurisdiction and no meeting of the board of
directors of the Company or any committee thereof has been held for which
minutes have not been prepared and are not contained in the minute books. To the
extent that they exist, all personnel files, reports, strategic planning
documents, financial forecasts, accounting and tax records and all other records
of every type and description that relate to the business of the Company have
been prepared and maintained in accordance with good business practices and
applicable laws and regulations. All such books and records are located in the
offices of the Company or of the Company Existing Practices.
Section 5.25. Condition and Sufficiency of Assets. Except as described
in Section 5.31, all buildings, improvements and equipment owned or leased by
the Company are structurally sound, are in good operating condition and repair
(subject to normal wear and tear) and are adequate for the uses to which they
are being put, and none of such buildings, improvements or equipment is in need
of maintenance or repairs except for ordinary, routine maintenance and repairs
that are not material in nature or cost.
Section 5.26. Offering. Subject to the truth and accuracy of the
Investors' Certificates to be delivered by the Shareholders at Closing, the
offer and issuance of Parent Common Stock as contemplated by this Agreement is
exempt from the registration requirements of the Securities Act, and neither the
Company nor any agent acting on its behalf will take any action hereafter that
will cause the loss of such exemption.
Section 5.27. Staff Privileges. Schedule 5.27 lists all hospitals at
which each Company Existing Practice has staff privileges and the extent of such
privileges. Such staff privileges have not been revoked, surrendered, suspended
or terminated, and except for routine recredentialing procedures, there are no
disciplinary actions or other proceedings pending or threatened that may result
in any revocation, surrender, suspension or termination of such staff
privileges. In addition, to Company's knowledge, there are no, and have not
been, any facts, conditions or incidents that may result in any revocation,
surrender, suspension or termination of such staff privileges.
Section 5.28. Fraud and Abuse. To the Company's knowledge, the Company
and the Company Existing Practices have not engaged in any activities which are
prohibited under ss.1320a-7b of Title 42 of the United States Code or the
regulations promulgated thereunder, or related state or local statutes or
regulations, or which are prohibited by rules of professional conduct,
including, but not limited to, the following: (i) knowingly and willfully making
or causing to be made a false statement or representation of a material fact in
any application for any benefit or payment; (ii) knowingly and willfully making
or causing to be made any false statement or representation of a material fact
for use in determining rights to any benefit or payment;
36
(iii) any failure by a
claimant to disclose knowledge of the occurrence of any event affecting the
initial or continued right to any benefit or payment on its own behalf or on
behalf of another, with the intent to fraudulently secure such benefit; and (iv)
knowingly and willfully soliciting or receiving any remuneration (including any
kickback, bribe or rebate) directly or indirectly, overtly or covertly, in cash
or in kind, or offering to pay or receive such remuneration (A) in return for
referring an individual to a person for the furnishing or arranging for the
furnishing of any item or service for which payment may be made in whole or in
part by Medicare or Medicaid, or (B) in return for purchasing, leasing or
ordering or arranging for, or recommending, purchasing, leasing or ordering any
good, facility, service or item for which payment may be made in whole or in
part by Medicare or Medicaid.
Section 5.29. Medicare, Medicaid, and Other Third-Party Payor Payment
Liabilities. To the Company's knowledge, the Company and the Company Existing
Practices do not have any liabilities (i) to any third party fiscal intermediary
or carrier administering any state Medicaid program or the federal Medicare
program, (ii) directly to any state Medicaid or the federal Medicare program, or
(iii) to any other third party payor for the recoupment of any amounts
previously paid to Company or any predecessor to Company by any such third-party
fiscal intermediary, carrier, Medicaid program, Medicare program, or third party
payor which exceed, individually or in the aggregate, $30,000. There are no
pending or, to the Company's knowledge, threatened actions by any third party
fiscal intermediary or carrier administering any state Medicaid or the federal
Medicare program, by the Department of Health and Human Services, any state
Medicaid agency, or any third party payor to suspend payments to the Company.
Neither the Company nor any licensed employee of the Company (other than a
physician in a Company Existing Practice) has been convicted of, or pled guilty
or nolo contendere to, patient abuse or negligence, or any other Medicare or
Medicaid related offense, and none of the foregoing persons has committed any
offense which is reasonably likely to serve as the basis for suspension or
exclusion from the Medicare and Medicaid programs.
Section 5.30. Bank Accounts; Powers of Attorney. The Company has set
forth on Schedule 5.30 (i) the name of each bank, savings and loan or other
financial institution in which the Company has any account or safe deposit box,
the style and number of each such account or safe deposit box and the names of
all persons authorized to draw thereon or have access thereto, and (ii) the name
of each person holding a general or special power of attorney from the Company
and a summary of the terms thereof.
Section 5.31. Year 2000 Compliance. The Company has not completed an
analysis to determine the extent to which its business and operations are Year
2000 Compliant (as hereinafter defined). The Company has determined, however,
that it is not, to the best of its knowledge, Year 2000 Compliant with respect
to the items disclosed on Schedule 5.31 hereto which items do not represent an
exhaustive list of instances in which the Company is not or may not be Year 2000
Compliant. "Year 2000 Compliant" means as to any person or entity that all
software, firmware, microprocessing chips and other data processing devices and
services (both as a recipient and as a
37
provider), capabilities and facilities utilized by, and material to the business
operations or financial condition of, that person or entity will be able to
record all calendar dates (whether before, in and after the year 2000) correctly
with four-digit year processing and will be able to communicate with other
applicable systems to accept any two-digit year data in a manner that resolves
any ambiguities as to century in a properly defined manner.
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
Section 6.1. Conduct of Business Pending the Merger. Except as set
forth on Schedule 6.1, after the date hereof and prior to the Closing Date, each
of Parent and the Company agrees that it shall (unless otherwise permitted by
Parent or Company as applicable, in writing):
(a) conduct its businesses in the ordinary and usual course
of business and consistent with past practice;
(b) not (i) amend or propose to amend its charter or bylaws,
(ii) split, combine, reorganize, reclassify, recapitalize or take any similar
action with respect to its outstanding capital stock or (iii) declare, set aside
or pay any dividend or distribution payable in cash, stock, property or
otherwise;
(c) not issue, sell, pledge or dispose of, or agree to issue,
sell, pledge or dispose of, any additional share of, or any options, warrants or
rights of any kind to acquire any share of, its capital stock of any class or
any debt or equity securities convertible into or exchangeable for such capital
stock;
(d) not (i) incur or become contingently liable with respect
to any indebtedness for borrowed money, (ii) redeem, purchase, acquire or offer
to redeem, purchase or acquire any shares of its capital stock or any options,
warrants or rights to acquire any of its capital stock or any security
convertible into or exchangeable for its capital stock, (iii) make any
acquisition of any assets or businesses other than expenditures at fair market
value for fixed or capital assets in the ordinary course of business not
exceeding $10,000 in any instance or $50,000 in the aggregate, (iv) sell,
pledge, dispose of or encumber any assets or businesses other than sales in the
ordinary course of business, and in all cases such sale must be for fair market
value at the time of sale or (v) enter into any contract, agreement, commitment
or arrangement with respect to any of the foregoing;
(e) use all reasonable efforts to preserve intact its business
organization and goodwill, keep available the services of their respective
present officers and key employees, and preserve the goodwill and business
relationships with customers and others having business relationships with them
and not engage in any action, directly or indirectly, with the intent to
adversely impact the transactions contemplated by this Agreement;
38
(f) not enter into or amend any employment, severance, special
pay arrangement with respect to termination of employment or other similar
arrangements or agreements with any directors, officers or key employees;
(g) not adopt, enter into or amend any bonus, profit sharing,
compensation, stock option, pension, retirement, deferred compensation, health
care, employment or other employee benefit plan, agreement, trust fund or
arrangement for the benefit or welfare of any employee or retiree, except as
required to comply with changes in applicable law;
(h) use commercially reasonable efforts to maintain with
financially responsible insurance companies insurance on its tangible assets and
its businesses in such amounts and against such risks and losses as are
consistent with past practice;
(i) not make, change or revoke any material Tax election
or make any material agreement or settlement regarding
Taxes with any taxing authority;
(j) not make any change in the Company's financial, Tax
or accounting methods, practices or policies, or in any
assumption underlying such a method, practice or policy;
(k) give prompt written notice to Parent of the commencement
of any Environmental Claim, or non-routine inspection by any Governmental
Authority with responsibility for enforcing or implementing any applicable
Environmental Laws, and provide to Parent such information as Parent may
reasonably request regarding such Environmental Claim, any developments in
connection therewith, and, as applicable, the Company's anticipated or actual
response thereto;
(l) use its commercially reasonable efforts to cause the
transfer of Environmental Permits (on the same terms and conditions), and any
financial assurance required thereunder to Parent or Merger Sub as may be
necessary under applicable Environmental Laws in connection with the
consummation of the transactions under this Agreement to allow Parent or Merger
Sub to conduct the business of the Company, as currently conducted;
(m) not enter into or assume any contracts or agreements
having a value or imposing an obligation upon the Company in excess of $10,000
annually and all contracts or agreements having a value to or imposing an
obligation on the Company that have remaining obligations of $50,000 or more,
regardless of the annual payment;
(n) maintain its books of account and records in the
usual, regular and ordinary manner consistent with past policies and practice;
(o) not compromise, settle, grant any waiver or release
relating to or otherwise adjust any litigation or claims of any nature
whatsoever pending against the Company;
39
(p) not take any action or omit to take any action, which
action or omission would result in a breach of any of
the representations and warranties set forth in this Agreement; and
(q) not make or commit to make any capital expenditures,
except for capital expenditures in the ordinary course of business not in excess
of $50,000 in the aggregate.
Section 6.2. Control of the Company's Operations. Nothing contained in
this Agreement shall give to Parent or the Company, directly or indirectly,
rights to control or direct the other party's operations prior to the Effective
Time. Prior to the Effective Time, Parent and the Company shall exercise,
consistent with the terms and conditions of this Agreement, complete control and
supervision of its operations.
Section 6.3. Other Offers. Except in connection with the transactions
contemplated by this Agreement, from and after the date hereof, the Company
shall not, and shall not permit any of the Company's officers, directors,
employees, Affiliates, representatives or agents to, directly or indirectly, (i)
solicit, initiate or knowingly encourage any offer or proposal for, or any
indication of interest in, a merger or business combination involving the
Company or the acquisition of an equity interest in, or any substantial portion
of the assets of, the Company or (ii) engage in negotiations with or disclose
any nonpublic information relating to the Company or Parent, or afford access to
the properties, books or records of the Company, to any Person. The Company
shall promptly notify and provide copies to Parent of any offer, proposal or
indication of interest, or communication with respect thereto, delivered to or
received from any third party.
ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.1. Access to Information. The Company shall afford to Parent
and Merger Sub and their respective accountants, counsel, financial advisors and
other representatives (the "Parent Representatives") full access during normal
business hours throughout the period prior to the Effective Time to all of its
respective properties (including without limitation to conduct soil,
groundwater, ambient air or other environmental testing or analyses), books,
contracts, personnel, representatives of or contacts with governmental or
regulatory authorities, agencies or bodies, commitments, and records (including,
but not limited to, Tax Returns and any and all records or documents which are
within the possession of governmental or regulatory authorities, agencies or
bodies, and the disclosure of which the Company can facilitate or control) and,
during such period, shall furnish promptly to Parent and Merger Sub all such
information concerning its respective businesses, properties and personnel as
Parent or Merger Sub, as the case may be, shall request. No investigation
pursuant to this Section shall affect any representation or warranty made by any
party.
Section 7.2. Expenses and Fees. Except when, and to the extent that,
Parent has expressly agreed otherwise in writing, APS has undertaken an
obligation, enforceable by Parent, to pay when due all costs and expenses
incurred by the Company in connection with the negotiation and entering into of
this Agreement and the consummation of the transactions contemplated hereby,
40
including, without limitation, any and all broker's commissions and the fees and
expenses of the Company's attorneys and accountants. Each of the Shareholders
has undertaken an obligation to pay when due all costs and expenses incurred by
that Shareholder in connection with the negotiation and entering into of this
Agreement and the consummation of the transactions contemplated hereby,
including, without limitation, the fees and expenses of its personal attorneys
and accountants (in each case, except to the extent Parent has expressly agreed
in writing to pay or reimburse the legal costs of the Shareholders). Except as
expressly provided above, the Company, at or prior to Closing, shall have made
all necessary arrangements so that the Company, Parent or Merger Sub will not be
charged with any such cost or expense, including expenses of the Shareholders
not paid by Parent; provided, however, that the Company Required Statutory
Approvals shall be paid by Parent. Parent shall pay all costs and expenses
incurred by Parent and Merger Sub in connection with the negotiation and
entering into of this Agreement and the consummation of transactions
contemplated hereby, including, without limitation, the fees and expenses of
their attorneys and accountants. In furtherance of the foregoing, Parent has
sole responsibility for all costs related to layoffs or terminations of
employees following the Effective Time.
Section 7.3. Agreement to Cooperate. Subject to the terms and
conditions herein provided, each of the parties hereto shall use all reasonable
efforts to take, or cause to be taken, all action and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement, including using its reasonable efforts to obtain all necessary,
proper or advisable waivers, consents and approvals under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement, including using its reasonable efforts to obtain all necessary
or appropriate waivers, consents or approvals of third parties required in order
to preserve material contractual relationships of the Company.
Section 7.4. Public Statements. Except as required by law, the parties
shall obtain the written consent of the other prior to issuing any press release
or any written public statement with respect to this Agreement or the
transactions contemplated hereby and shall not issue any such press release or
written public statement prior to such consent, which shall not be unreasonably
withheld.
Section 7.5. Notification of Certain Matters. Each of the Company,
Parent and Merger Sub agrees to give prompt notice to each other of, and to use
their respective reasonable best efforts to prevent or promptly remedy, (i) the
occurrence or failure to occur or the impending or threatened occurrence or
failure to occur, of any event which occurrence or failure to occur would be
likely to cause any of its representations or warranties in this Agreement to be
untrue or inaccurate in any material respect (or in all respects in the case of
any representation or warranty containing any materiality qualification) at any
time from the date hereof to the Effective Time and (ii) any material failure
(or any failure in the case of any covenant, condition or agreement containing
any materiality qualification) on its part to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder; provided, however, that the delivery of any notice pursuant to this
Section shall not limit or otherwise affect the remedies available hereunder to
the party receiving such notice.
41
Section 7.6. Exclusivity. The Company acknowledges that the due
diligence and other investigations permitted herein will involve the
expenditures of substantial time and expense by Parent. In consideration
thereof, the Company, on its own behalf and on behalf of its Affiliates, agrees
that for a period of up to and including August 15, 1999, it will not make or
encourage any offer or obtain any offer or otherwise provide any assistance in
aid of any offer for the sale, lease or transfer of all or any part of the
business of the Company or of the stock or assets of the business of the
Company, to any Person other than Parent. Immediately upon receipt of any
unsolicited offer, the Company will communicate to Parent the terms of any
proposal or request for information and the identity of the parties involved.
Section 7.7. Confidentiality. Without the express written consent of
all of the parties hereto, each of the parties hereto agrees to maintain in
confidence and not disclose to any other Person the terms of the transactions
contemplated herein or the information delivered in connection with the proposed
due diligence investigation, other than disclosures required to obtain the
approvals for the transactions contemplated hereby, disclosures to those
professionals and advisors who have a need to know, disclosures of information
already available to the public or any other disclosures required by applicable
law. In the event that either Parent or Merger Sub are at any time requested or
required (by oral questions, interrogatories, request for information or
documents, subpoena or other similar process) to disclose any information
supplied to it in connection with this transaction, such party agrees to provide
the other parties hereto prompt notice of such request so that an appropriate
protective order may be sought and/or such other party may waive the first
party's compliance with the terms of this Section 7.7.
Section 7.8. Registration Rights. Parent covenants and agrees as
follows:
(a) Definitions. For purposes of this Section, the
following terms shall have the following meanings:
"Form S-3" means such form under the Securities Act as in
effect on the date hereof or any registration form under the Securities
Act subsequently adopted by the SEC that permits inclusion or
incorporation of substantial information by reference to other
documents filed by Parent with the SEC.
"Holder" means any person owning or having the right to
acquire Registrable Securities or any assignee thereof in accordance
with subsection (i) of this Section.
"Initial Offering" means Parent's first firm commitment
underwritten public offering of its Parent Common Stock under the
Securities Act.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
42
"register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement
or similar document in compliance with the Securities Act, and the
declaration or ordering of effectiveness of such registration statement
or document.
"Registrable Securities" means the Parent Common Stock issued
to the Shareholders pursuant to this Agreement and any additional
shares of Parent Common Stock issued to the Shareholders pursuant to a
stock split, reverse split, stock dividend (including any dividend of
securities convertible into Parent Common Stock), reorganization,
reclassification, recapitalization or other similar change with respect
to Registrable Securities, excluding in all cases, however, any
Registrable Securities sold by a person in a transaction in which his
rights under this Section are not assigned.
"SEC" shall mean the Securities and Exchange Commission.
(b) Parent Registration. Except as otherwise provided in this
Section (but without any obligation under this Agreement to do so), if Parent
proposes to register (including for this purpose a registration effected by
Parent for stockholders other than the Holders, whether or not required under
another agreement) any of the Parent Common Stock under the Securities Act in
connection with the public offering of such securities (other than a
registration relating solely to the sale of securities to participants in a
Parent stock plan, a registration relating to a corporate reorganization or
other transaction under Rule 145 of the Securities Act, a registration on any
form that does not include substantially the same information as would be
required to be included in a registration statement covering the sale of the
Registrable Securities, or a registration in which the only Parent Common Stock
being registered is Parent Common Stock issuable upon conversion of debt
securities that are also being registered), Parent shall, within ten (10) days
thereafter, give each Holder written notice of such registration. Upon the
written request of each Holder, provided said request is given within twenty
(20) days after mailing of the notice required of Parent under this subsection,
Parent shall, subject to the limits set forth in this Section, use commercially
reasonable efforts to cause to be registered under the Securities Act all of the
Registrable Securities that each such Holder has requested to be registered;
provided that:
(i) Parent shall have the right to terminate or
withdraw any registration initiated by it under this subsection prior
to the effectiveness of such registration whether or not any Holder has
elected to include securities in such registration. The expenses of
such withdrawn registration shall be borne by Parent in accordance with
subsection (e) of this Section; and
(ii) In connection with any offering involving an
underwriting of shares of Parent Common Stock, Parent shall not be
required under this subsection to include any of the Holders'
securities in such underwriting unless they accept the terms of the
underwriting as agreed upon between Parent and the underwriters
selected by it (or by other persons entitled to select the
underwriters) and enter into an underwriting agreement in customary
form with an underwriter or underwriters selected by Parent, and then
43
only in such quantity as the underwriters determine in their sole
discretion will not jeopardize the success of the offering by Parent.
If the total amount of securities, including Registrable Securities,
requested by stockholders to be included in such offering exceeds the
amount of securities that the underwriters determine in their sole
discretion is compatible with the success of the offering, then Parent
shall be required to include in the offering only the number of such
securities, including Registrable Securities, that the underwriters
determine in their sole discretion will not jeopardize the success of
the offering (the securities so included to be apportioned pro rata
among the selling Holders according to the total amount of securities
entitled to be included therein owned by each selling Holder or in such
other proportions as shall mutually be agreed to by such selling
Holders); provided, however, in no event shall Registrable Securities
held by a Holder be included in such registration statement (i) if such
offering is the initial public offering of Parent's securities, in
which case the selling Holders' securities may be excluded if the
underwriters make the determination described above or (ii) unless all
of the following securities are included in such Registration
Statement: (x) all shares of capital stock of Parent which are subject
to registration rights as of the Closing Date; (y) all shares of
capital stock of Parent which are held by officers of Parent that hold
an office on the Closing Date; and (z) all shares of capital stock of
Parent that are issued with registration rights after the date hereof
in connection with a cash financing transaction (or any other type of
transaction approved in writing by a majority of the Shareholders) with
Parent or any Subsidiary of Parent. For purposes of the immediately
preceding parenthetical concerning apportionment, for any selling
stockholder that is a Holder of Registrable Securities and that is a
partnership or corporation, the partners, retired partners and
stockholders of such Holder, or the estates and family members of any
such partners and retired partners and any trusts for the benefit of
any of the foregoing persons shall be deemed to be a single "selling
Holder," and any pro rata reduction with respect to such selling Holder
shall be based upon the aggregate amount of Registrable Securities
owned by all such related entities and individuals.
(iii) With respect to any underwriting of shares,
Parent shall have the right to designate the managing underwriter or
underwriters.
(c) Obligations of Parent. Whenever required under this
Section 7.8 to effect the registration of any Registrable Securities, Parent
shall, as expeditiously as reasonably possible:
(i) prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use its
commercially reasonably efforts to cause such registration statement to
become effective; provided, however, that in connection with any
proposed registration intended to permit an offering of any securities
from time to time (i.e., a "Shelf Registration"), Parent shall in no
event be obligated to cause any such registration to remain effective
for more than one-hundred twenty (120) days;
(ii) prepare and file with the SEC such amendments
and supplements to such registration
44
statement and the prospectus used
in connection with such registration statement as may be necessary to
comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such registration statement;
(iii) furnish to the Holders such numbers of copies
of a prospectus, including a preliminary prospectus, in conformity with
the requirements of the Securities Act, and such other documents as
they may reasonably request in order to facilitate the disposition of
Registrable Securities owned by them;
(iv) use commercially reasonable efforts to register
and qualify the securities covered by such registration statement under
such other securities or Blue Sky laws of such jurisdictions as shall
be necessary for the distribution of the securities covered by the
registration statement, provided that Parent shall not be required in
connection therewith or as a condition thereto to qualify to do
business or to file a general consent to service of process in any such
states or jurisdictions and further provided that (anything in this
Agreement to the contrary notwithstanding with respect to the bearing
of expenses) if any jurisdiction in which the securities shall be
qualified shall require that expenses incurred in connection with the
qualification of the securities in that jurisdiction be borne by
selling stockholders, then such expenses shall be payable by selling
stockholders pro rata, to the extent required by such jurisdiction;
(v) in the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement,
in usual and customary form, with the managing underwriter of such
offering;
(vi) notify each Holder of Registrable Securities
covered by such registration statement at any time when a prospectus
relating thereto is required to be delivered under the Securities Act
or the happening of any event as a result of which the prospectus
included in such registration statement, as then in effect, includes an
untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing;
(vii) use reasonable efforts to cause all such
Registrable Securities registered pursuant hereunder to be listed on
each securities exchange on which similar securities issued by Parent
are then listed; and
(viii) provide a transfer agent and registrar for all
Registrable Securities registered hereunder and a CUSIP number for all
such Registrable Securities, in each case not later than the effective
date of such registration.
(d) Information from Holder. It shall be a condition precedent
to the obligations of Parent to take any action pursuant to this Section with
respect to the Registrable Securities of any selling Holder that such Holder
shall furnish to Parent such information regarding itself, the Registrable
45
Securities held by it, and the intended method of disposition of such securities
as shall be required to effect the registration of such Holder's Registrable
Securities.
(e) Expenses of Registration. All reasonable expenses
(excluding underwriting discounts and brokerage commissions) incurred in
connection with registrations, filings or qualifications pursuant to subsection
(b) of this Section, including without limitation, all registration, filing and
qualification fees, printers' and accounting fees, fees and disbursements of
counsel for Parent and the reasonable fees and disbursements of one counsel for
the selling Holders shall be borne by Parent.
(f) Delay of Registration. No Holder shall have any right to
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section.
(g) Indemnification. In the event any Registrable Securities
are included in a registration statement under this Section:
(i) To the extent permitted by law, Parent will
indemnify and hold harmless each Holder, the partners or officers,
directors and stockholders of each Holder, legal counsel and
accountants for each Holder, any underwriter (as defined in the
Securities Act) for such Holder and each person, if any, who controls
such Holder or underwriter within the meaning of the Securities Act or
the 1934 Act, against any losses, claims, damages or liabilities (joint
or several) to which they may become subject under the Securities Act,
the 1934 Act or any state securities laws, insofar as such losses,
claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon any of the following statements, omissions or
violations (collectively a "Violation"): (A) any untrue statement or
alleged untrue statement of a material fact contained in such
registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto,
(B) the omission or alleged omission of a material fact required to be
stated therein, or necessary to make the statements therein not
misleading, or (C) any violation or alleged violation by Parent of the
Securities Act, the 1934 Act, any state securities laws or any rule or
regulation promulgated under the Securities Act, the 1934 Act or any
state securities laws; and Parent will reimburse each such Holder,
underwriter or controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided,
however, that the indemnity agreement contained in this subsection
(g)(i) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected
without the consent of Parent (which consent shall not be unreasonably
withheld), nor shall Parent be liable in any such case for any such
loss, claim, damage, liability or action to the extent that it arises
out of or is based upon a Violation that occurs in reliance upon and in
conformity with written information furnished expressly for use in
connection with such registration by any such Holder, underwriter or
controlling person; provided further, however, that the foregoing
indemnity agreement with respect to any
46
preliminary prospectus shall
not inure to the benefit of any Holder or underwriter, or any person
controlling such Holder or underwriter, from whom the person asserting
any such losses, claims, damages or liabilities purchased shares in the
offering, if a copy of the prospectus (as then amended or supplemented
if Parent shall have furnished any amendments or supplements thereto)
was not sent or given by or on behalf of such Holder or underwriter to
such person, if required by law so to have been delivered, at or prior
to the written confirmation of the sale of the shares to such person,
and if the prospectus (as so amended or supplemented) would have cured
the defect giving rise to such loss, claim, damage or liability.
(ii) To the extent permitted by law, each selling
Holder will indemnify and hold harmless Parent, each of its directors,
each of its officers who has signed the registration statement, each
person, if any, who controls Parent within the meaning of the
Securities Act, legal counsel and accountants for Parent, any
underwriter, any other Holder selling securities in such registration
statement and any controlling person of any such underwriter or other
Holder, against any losses, claims, damages or liabilities (joint or
several) to which any of the foregoing persons may become subject,
under the Securities Act, the 1934 Act or any state securities laws,
insofar as such losses, claims, damages or liabilities (or actions in
respect thereto) arise out of or are based upon any Violation, in each
case to the extent (and only to the extent) that such Violation occurs
in reliance upon and in conformity with written information furnished
by such Holder expressly for use in connection with such registration;
and each such Holder will reimburse any person intended to be
indemnified pursuant to this subsection (g)(ii), for any legal or other
expenses reasonably incurred by such person in connection with
investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the indemnity agreement contained in
this subsection (g)(ii) shall not apply to amounts paid in settlement
of any such loss, claim, damage, liability or action if such settlement
is effected without the consent of the Holder (which consent shall not
be unreasonably withheld), provided that in no event shall any
indemnity under this subsection (g)(ii) exceed the net proceeds from
the offering received by such Holder.
(iii) Promptly after receipt by an indemnified party
under this subsection (g) of notice of the commencement of any action
(including any governmental action), such indemnified party will, if a
claim in respect thereof is to be made against any indemnifying party
under this subsection (g), deliver to the indemnifying party a written
notice of the commencement thereof and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying
party so desires, jointly with any other indemnifying party similarly
noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified
party (together with all other indemnified parties that may be
represented without conflict by one counsel) shall have the right to
retain one separate counsel, with the fees and expenses to be paid by
the indemnifying party, if representation of such indemnified party by
the counsel retained by the indemnifying party would be inappropriate
due to actual or potential differing interests between such indemnified
47
party and any other party represented by such counsel in such
proceeding. The failure to deliver written notice to the indemnifying
party within a reasonable time of the commencement of any such action,
if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this
subsection (g), but the omission so to deliver written notice to the
indemnifying party will not relieve it of any liability that it may
have to any indemnified party otherwise than under this subsection (g).
(iv) Notwithstanding the foregoing, to the extent
that the provisions on indemnification and contribution contained in
the underwriting agreement entered into in connection with the
underwritten public offering are in conflict with the foregoing
provisions, the provisions in the underwriting agreement shall control.
(v) The obligations of Parent and Holders under this
subsection (g) shall survive the completion of any offering of
Registrable Securities in a registration statement under this Section
7.8, and otherwise.
(h) Reports Under Securities Exchange Act of 1934. With a view
to making available to the Holders the benefits of Rule 144 promulgated under
the Securities Act and any other rule or regulation of the SEC that may at any
time permit a Holder to sell securities of Parent to the public without
registration or pursuant to a registration on Form S-3, Parent agrees that while
it has a class of equity securities registered under the 1934 Act, it will use
its commercially reasonable efforts to:
(i) make and keep public information available, as
those terms are understood and defined in SEC Rule 144, at all times
after the effective date of the Initial Offering;
(ii) file with the SEC in a timely manner all
reports and other documents required of Parent under the Securities Act
and the 1934 Act; and
(iii) furnish to any Holder, so long as the Holder
owns any Registrable Securities, forthwith upon request (A) a written
statement by Parent that it has complied with the reporting
requirements of SEC Rule 144 (at any time after ninety (90) days after
the effective date of the first registration statement filed by
Parent), the Securities Act and the 1934 Act (at any time after it has
become subject to such reporting requirements), or that it qualifies as
a registrant whose securities may be resold pursuant to Form S-3 (at
any time after it so qualifies), (B) a copy of the most recent annual
or quarterly report of Parent and such other reports and documents so
filed by Parent, and (C) such other information as may be reasonably
requested in availing any Holder of any rule or regulation of the SEC
that permits the selling of any such securities without registration or
pursuant to such form.
48
(i) Assignment of Registration Rights. The rights to cause
Parent to register Registrable Securities pursuant to this Section 7.8 may be
assigned (but only with all related obligations) by a Holder to a transferee or
assignee of such securities that (i) is a subsidiary, parent, partner, limited
partner, retired partner or stockholder of a Holder, (ii) is a Holder's family
member or trust for the benefit of an individual Holder, or (iii) after such
assignment or transfer, holds at least 25,000 shares of Registrable Securities
(subject to appropriate adjustment for stock splits, stock dividends,
combinations and other recapitalizations), provided: (x) Parent is, within a
reasonable time after such transfer, furnished with written notice of the name
and address of such transferee or assignee and the securities with respect to
which such registration rights are being assigned; (y) such transferee or
assignee agrees in writing to be bound by and subject to the terms and
conditions of the Investor Rights Agreement and this Agreement, including
without limitation, the provisions of subsection (l) of this Section; and (z)
such assignment shall be effective only if immediately following such transfer
the further disposition of such securities by the transferee or assignee is
restricted under the Securities Act.
(j) Limitations on Subsequent Registration Rights. Except as
provided in the following sentence, from and after the date of this Agreement,
Parent shall not, without the prior written consent of the Holders of two-thirds
of the Registrable Securities, which will not be unreasonably withheld, enter
into any agreement with any holder or prospective holder of any securities of
Parent that would allow such holder or prospective holder (i) to include such
securities in any registration filed under subsection (b) of this Section,
unless under the terms of such agreement, such holder or prospective holder may
include such securities in any such registration only to the extent that the
inclusion of such securities will not reduce the amount of the Registrable
Securities of the Holders that are included or (ii) to demand registration of
their securities. Notwithstanding the foregoing, the parties agree and
acknowledge that the above-referenced restriction shall not affect any
registration rights granted prior to the Closing Date, and shall not prohibit
Parent from granting registration rights after the Closing Date (including
rights that may have priority over those granted pursuant to this Section 7.8)
with respect to the following securities: (y) shares of capital stock of Parent
which are held by officers of Parent that hold an office on the Closing Date;
and (z) shares of capital stock of Parent that are issued in connection with a
cash financing transaction with Parent or any Subsidiary of Parent.
(k) "Market Stand-Off" Agreement. Each Holder hereby agrees
that it will not, without the prior written consent of the managing underwriter,
during the period commencing on the date of the final prospectus relating to
Parent's initial public offering and ending on the date specified by Parent and
the managing underwriter (such period not to exceed one hundred eighty (180)
days) (i) lend, offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, or otherwise transfer or dispose of, directly or
indirectly, any shares of Parent Common Stock or any securities convertible into
or exercisable or exchangeable for Parent Common Stock (whether such shares or
any such securities are then owned by the Holder or are thereafter acquired), or
(ii) enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the Parent
Common Stock, whether any such transaction described
49
in clause (i) or (ii) above
is to be settled by delivery of Common Stock or such other securities, in cash
or otherwise. The foregoing provisions of this subsection shall apply only to
Parent's initial public offering of equity securities, shall not apply to the
sale of any shares to an underwriter pursuant to an underwriting agreement, and
shall only be applicable to the Holders if all officers and directors and
greater than five percent (5%) stockholders of Parent enter into similar
agreements. The underwriters in connection with Parent's initial public offering
are intended third party beneficiaries of this subsection and shall have the
right, power and authority to enforce the provisions hereof as though they were
a party hereto. In order to enforce the foregoing covenant, Parent may impose
stop-transfer instructions with respect to the Registrable Securities of each
Holder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period. _
(l) Termination of Registration Rights. No Holder shall be
entitled to exercise any right provided for in this Section 7.8 after three (3)
years following the consummation of the Initial Offering or, as to any Holder,
such earlier time at which all Registrable Securities held by such Holder (and
any affiliate of the Holder with whom such Holder must aggregate its sales under
Rule 144) can be sold in any three (3)-month period without registration in
compliance with Rule 144 of the Securities Act.
Section 7.9. Share Exchange Agreements. Parent and Merger Sub
acknowledge the existence and binding and enforceable nature of the Share
Exchange Agreements and that counsel to Parent and Merger Sub has carefully
reviewed each Share Exchange Agreement. Each of Parent and Merger Sub agrees
that (i) it has no rights to enforce any of the provisions of, and is not an
intended third party beneficiary under, any of the Share Exchange Agreements and
(ii) that it will take no action which jeopardizes the binding and enforceable
nature of the Share Exchange Agreements and/or interfere with any of the rights
of any person or entity that is a party to any of the Share Exchange Agreements.
Section 7.10. Employee Benefits. Effective as of the Closing, all
welfare plans (as defined in ERISA Section 3(1)) provided, sponsored, or offered
by APS and made available to the Company and its employees immediately prior to
the Closing ("APS Welfare Plans") will continue to be made available by APS to
the Surviving Corporation and its employees in the same manner and to the same
extent that such APS Welfare Plans were made available by APS to the Company
immediately prior to the Closing (except that the Surviving Corporation may add
newly hired employees for coverage under such APS Welfare Plans). For these
purposes, APS shall continue to make available all such APS Welfare Plans to the
Surviving Corporation through December 31, 1999, or, if earlier, such date that
the Surviving Corporation provides written notice to APS to modify or terminate
coverage under one or more such APS Welfare Plans. All fees and expenses
relating to the APS Welfare Plans shall be consistent with the fees and expenses
incurred by the Company prior to Closing on a per participant basis, and will be
paid by the Surviving Corporation to APS. Notwithstanding the foregoing, APS
shall not be liable for any liability arising under COBRA with respect to
employees of the Surviving Corporation who are terminated by the Surviving
50
Corporation after the Closing Date, and the Surviving Corporation shall
reimburse APS to the extent that APS incurs any such liability.
Section 7.11. Filings. Parent or Merger Sub shall timely file all
forms, notices, or other filings required by any state or federal securities'
regulator.
Section 7.12. Net Working Capital.
(a) Initial Principal Amount. Merger Sub hereby agrees to
execute the Replacement Promissory Note at the Closing. Immediately following
the Closing, the principal amount outstanding under the Replacement Promissory
Note shall equal all outstanding amounts (including principal and interest)
under the Original Promissory Note at the time of Closing plus the First Advance
(as defined under Section 7.13(a)), if any; provided, however, that if the
principal amount of the Replacement Promissory Note as of the Closing Date
exceeds $2,000,000 (the "Cap"), there shall be either (i) a reduction in the
principal amount of the Replacement Promissory Note by an amount equal to the
difference between the Replacement Promissory Note and the Cap (the "Closing
Credit Amount"), or (ii) an offset against interest due under the Replacement
Promissory Note in an amount equal to the Closing Credit Amount, which offset
shall be taken against each payment of accrued and unpaid interest due
thereunder until the Closing Credit Amount shall be paid in full and; provided,
further, that any offset or reduction under subsection (a)(i) and (a)(ii) above,
plus any offset or reduction under Section 7.13(b)(ii)(y) and (z), shall be
deemed to have occurred prior to June 30, 1999 for purposes of calculating Net
Working Capital under this Section 7.12. APS shall have the right to select one
of the above-referenced methodologies with respect to such Closing Credit
Amount, which amount must be disclosed in writing to Parent on or before the
Closing Date. If APS does not make a selection within thirty (30) days, Parent
shall then have the right to select one of the above-referenced methodologies
with respect to such Closing Credit Amount, which must be disclosed in writing
to APS on or before the date on which first interest payment is due under the
Replacement Promissory Note. The payment terms of the Replacement Promissory
Note shall include interest only payments for a period of twenty four (24)
months immediately following the Closing Date, payable quarterly.
(b) Net Working Capital. For purposes of this Section 7.12,
"Net Working Capital" means an amount equal to the actual current assets less
actual current liabilities of the Company existing on June 30, 1999,
(irrespective of when such amount is calculated), determined in accordance with
GAAP (except as adjusted on Exhibit F hereto), and may be a positive or negative
number.
(c) First Actual Net Working Capital Calculation. Within 90
days after the Closing Date, Parent shall cause the Surviving Corporation to
prepare a balance sheet (the "First Net Working Capital Closing Date Balance
Sheet") of the Company as of June 30, 1999, including a computation of the
actual Net Working Capital (the "First Actual Net Working Capital"). The First
Net Working Capital Closing Date Balance Sheet shall be prepared in accordance
with GAAP (except as adjusted on Exhibit F hereto) and agreed upon by APS and
51
Parent. Any disagreements involving the First Actual Net Working Capital Closing
Date Balance Sheet or the calculation of the First Actual Net Working Capital
shall be resolved in accordance with the procedure set forth in Section 7.12(e)
below. If the First Actual Net Working Capital is greater than $700,000 (the
"Threshold"), then no adjustment shall be made or other action taken pursuant to
this subsection (c). If the First Actual Net Working Capital is less than the
Threshold, there shall be either (i) a reduction in the principal amount of the
Replacement Promissory Note by an amount equal to the difference between the
First Actual Net Working Capital and the Threshold (the "First Credit Amount"),
or (ii) an offset against interest due under the Replacement Promissory Note in
an amount equal to the First Credit Amount, which offset shall be taken against
each payment of accrued and unpaid interest due thereunder until the First
Credit Amount shall be paid in full. APS shall have the right to select one of
the above-referenced methodologies with respect to such First Credit Amount,
which must be disclosed in writing to Parent within ten (10) business days after
such amount is agreed upon or finally determined under subsection (e) below. If
APS does not make a selection within such ten (10) business day period, Parent
shall then have the right to select one of the above-referenced methodologies
with respect to such First Credit Amount, which must be disclosed in writing to
APS on or before the date on which the next interest payment is due under the
Replacement Promissory Note. Any reduction or offset pursuant to this subsection
(c) shall be effective contemporaneously with such determination.
(d) Second Actual Net Working Capital Calculation. On the
Calculation Date, Parent shall cause the Surviving Corporation to prepare a
second balance sheet (the "Second Net Working Capital Closing Date Balance
Sheet") of the Company as of June 30, 1999, including a computation of the
actual Net Working Capital (the "Second Actual Net Working Capital"). The Second
Net Working Capital Closing Date Balance Sheet shall be prepared in accordance
with GAAP (except as adjusted on Exhibit F hereto). Any objections to the
calculation of the Second Actual Net Working Capital shall be resolved in
accordance with the procedure set forth in Section 7.12(e) below.
(i) If the Second Net Working Capital is greater
than the First Net Working Capital (such difference hereinafter
referred to as the "Surplus"), there shall be either (A) an increase in
the principal amount of the Replacement Promissory Note by an amount
equal to the lesser of the Surplus or the First Credit Amount, or (B)
an increase in the interest due under the Replacement Promissory Note
(but not in excess of the maximum non-usurious rate of interest that
may be charged under applicable law), beginning with the next interest
payment due thereunder and continuing until the First Credit Amount has
been paid in full, in an amount equal to the lesser of the Surplus or
the First Credit Amount; provided, however, that there shall be no such
increase if both the First Net Working Capital and the Second Net
Working Capital exceed the Threshold. The methodology used in effecting
any increase pursuant to this subsection shall be consistent with the
methodology actually applied by the parties pursuant to Section 7.12(a)
(but only to the extent not prohibited by the immediately preceding
parenthetical). Any increase pursuant to this subsection (d)(i) shall
be effective contemporaneously with such determination.
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(ii) If the Second Net Working Capital is less than
the First Net Working Capital, there shall be either (A) a reduction in
the principal amount of the Replacement Promissory Note by an amount
equal to the lesser of the Threshold and the First Actual Net Working
Capital, minus the Second Net Working Capital (the "Second Credit
Amount"), or (B) an offset against interest due under the Replacement
Promissory Note in an amount equal to the Second Credit Amount, which
offset shall be taken against each payment of accrued and unpaid
interest due thereunder until the Second Credit Amount shall be paid in
full; provided, however, that there shall be no such reduction or
offset if both the First Net Working Capital and the Second Net Working
Capital exceed the threshold. APS shall have the right to select one of
the above-referenced methodologies with respect to such Second Credit
Amount, which must be disclosed in writing to Parent within ten (10)
business days after such amount is agreed upon or finally determined
under subsection (e) below. If APS does not make a selection within
such ten (10) business day period, Parent shall then have the right to
select one of the above-referenced methodologies with respect to such
Second Credit Amount, which must be disclosed in writing to APS on or
before the date on which next interest payment is due under the
Replacement Promissory Note. Any reduction or offset pursuant to this
subsection (d)(ii) shall be effective contemporaneously with such
determination.
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(e) Net Working Capital Dispute Resolution. If, within 15 days
following APS' receipt of the First Net Working Capital Closing Date Balance
Sheet, APS shall not have objected in writing thereto, then the First Actual Net
Working Capital shall be computed using such First Net Working Capital Closing
Date Balance Sheet. If, within 15 days following APS' receipt of the Second Net
Working Capital Closing Date Balance Sheet, APS shall not have objected in
writing thereto, then the Second Actual Net Working Capital shall be computed
using such Second Net Working Capital Closing Date Balance Sheet. If APS objects
in writing to either computation, then APS and the Parent shall negotiate in
good faith and attempt to resolve their disagreement. Should such negotiations
not result in an agreement within 20 days of Parent's receipt of the objection,
then the matter shall be submitted to a Neutral Auditor. If APS and Parent are
unable to agree on the Neutral Auditor, then APS and Parent shall request the
American Arbitration Association to appoint the Neutral Auditor. The Neutral
Auditor will deliver to APS and Parent a written determination (such
determination to include a worksheet setting forth all material calculations
used in arriving at such determination and to be based solely on information
provided to the Neutral Auditors by APS and Parent, or their respective
affiliates) of the disputed items within 30 days of receipt of the disputed
items, which determination will be final, binding and conclusive on the parties.
If the Neutral Auditor's determination of Net Working Capital is within $25,000
of Parent's calculation of the Net Working Capital (whether the difference is
positive or negative), all fees and expenses relating to appointment of the
Neutral Auditor and the work, if any, to be performed by the Neutral Auditor
will be borne by APS. If the difference between the Neutral Auditor's
determination of Net Working Capital and Parent's calculation of Net Working
Capital is greater than $25,000, but less than or equal to $100,000 (whether the
difference is positive or negative), all fees and expenses relating to
appointment of the Neutral Auditor and the work, if any, to be performed by the
Neutral Auditor will be borne half by APS and half by Parent. If the difference
between the Neutral Auditor's determination of Net Working Capital and Parent's
calculation of the Net Working Capital is greater than $100,000 (whether the
difference is positive or negative), all fees and expenses relating to
appointment of the Neutral Auditor and the work, if any, to be performed by the
Neutral Auditor will be borne exclusively by Parent.
(f) Calculations Independent of Ownership. The calculations
of Net Working Capital in this Section 7.12 are made independent of the
ownership of the Surviving Corporation after Closing.
(g) No Other Offsets. Except as expressly provided in this
Section or in Section 7.13 below, Parent and Merger Sub each agree that it is
not under any circumstances entitled to offset any amounts owed under or with
respect to the Replacement Promissory Note.
Section 7.13. Advances under Promissory Note; Payables.
(a) First Payables Estimate. Prior to the Closing Date, the
Company shall deliver to Parent a June 30, 1999 balance sheet of the Company, in
the form attached as Exhibit G hereto, setting forth an estimate of the accounts
payable and accrued expenses of the Company in accordance with GAAP (except as
adjusted on Exhibit F hereto) as of such date (the "First Payables Estimate").
54
If the First Payables Estimate is greater than $200,000 (the "Allowable
Amount"), then APS shall, on the Closing Date, make an advance to the Surviving
Corporation (the "First Advance") under the Replacement Promissory Note in an
amount equal to the difference between the First Payables Estimate minus the
Allowable Amount. The First Advance shall have the effect on the Replacement
Promissory Note as set forth in Section 7.12(a) hereof. APS shall deposit the
First Advance directly into a bank account controlled by Parent (the "Deposit
Account"), which shall be maintained separately from other funds of the Parent
and shall be used exclusively for the payment of accounts payable and accrued
expenses of the Surviving Corporation arising on or prior to June 30, 1999 and
determined in accordance with GAAP (except as adjusted on Exhibit F hereto).
Parent shall maintain such Deposit Account for a period of one (1) year from the
Closing Date, and shall provide APS copies of monthly statements of the Deposit
Account and supporting invoices or other expense documentation for all payments
over $5,000 during such period. If any balance remains outstanding at the end of
such one (1) year period, the amount in excess of accrued vacation, property
taxes, escheat liabilities and profit sharing amounts outstanding as of June 30,
1999 shall be returned to APS.
(b) Second Payables Estimate. Immediately following agreement
upon or final determination of the First Net Working Capital Closing Date
Balance Sheet pursuant to Section 7.12(c) and, if applicable, Section 7.12(e),
Parent and APS shall add the accounts payable and accrued expenses of the
Company set forth in the First Net Working Capital Closing Date Balance Sheet
(the "Second Payables Estimate").
(i) If the Second Payables Estimate is less than the
First Payables Estimate (such difference being referred to herein as
the "Refund"), Parent shall distribute to APS cash in an amount equal
to the lesser of (A) the Refund or (B) the First Advance; provided,
however, that there shall be no such payment under subsection (i)
hereof and subsection (ii) below if both the First Payables Estimate
and the Second Payables Estimate are less than the Allowable Amount.
The aggregate distribution pursuant to the preceding sentence shall
decrease the principal outstanding under the Replacement Promissory
Note, in an identical amount, as of the date the funds are paid to APS.
(ii) If the Second Payables Estimate is greater than
both the First Payables Estimate and the Allowable Amount, then APS
shall make an advance under the Replacement Promissory Note (the
"Second Advance") to Surviving Corporation equal to the Second Payables
Estimate minus the greater of (A) the Allowable Amount and (B) the
First Payables Estimate. APS shall deposit the Second Advance directly
into the Deposit Account. The Second Advance shall increase the
principal outstanding under the Replacement Promissory Note in an
identical amount as of the date the funds are disbursed by APS;
provided, however, that if all or any portion of the Second Advance,
when added to the outstanding principal under the Replacement
Promissory Note, exceeds the Cap (such amount being referred to herein
as the "Excess Advance"), there shall be either (y) a reduction in the
principal amount of the Replacement Promissory Note by an amount equal
to the Excess Advance, or (z) an offset against interest due under the
55
Replacement Promissory Note in an amount equal to the Excess Advance,
which offset shall be taken against each payment of accrued and unpaid
interest due thereunder until the Excess Advance shall be paid in full.
APS shall have the right to select one of the above-referenced
methodologies with respect to such Excess Advance, which must be
disclosed in writing to Parent within ten (10) business days after such
amount is agreed upon or finally determined as set forth herein. If APS
does not make a selection within such ten (10) business day period,
Parent shall then have the right to select one of the above-referenced
methodologies with respect to such Excess Advance, which must be
disclosed in writing to APS on or before the date on which next
interest payment is due under the Replacement Promissory Note. Except
for purposes of calculating Net Working Capital under Section 7.12, any
reduction or offset pursuant to this subsection (b)(ii) shall be
effective contemporaneously with such determination.
Section 7.14. Advances under Promissory Note; Event of Default. The
Company is guarantor of the following notes in connection with the merger of APA
Transition, Inc., a Texas corporation ("APA"), with and into the Company in
accordance with the terms of that certain Agreement and Plan of Reorganization,
dated December 31, 1998, by and among the Company, APA and Xxxxx X. Xxxxx, M.D.
(the "Xxxxx Merger"): (i) Promissory Note, dated March 11, 1997, in the original
principal amount of $170,000, by and between Horizon Bank & Trust, SSB and
Austin Perinatal Associates, P.A. (this Promissory Note was later acquired by
Compass Bank); (ii) Promissory Note, dated March 20, 1998, in the original
principal amount of $59,000, by and between Norwest Bank Texas, N.A. and Austin
Perinatal Associates, P.A.; (iii) Fixed Rate Commercial Promissory Note, dated
February 27, 1998, in the original principal amount of $20,000, by and between
Compass Bank and Austin Perinatal Associates, P.A.; and (iv) Promissory Note,
dated November 6, 1998, in the original principal amount of $114,500, by and
between Norwest Bank Texas, N.A. and Austin Perinatal Associates, P.A.
(collectively, the "Notes"). If, as a result of the Xxxxx Merger, an event of
default occurs (or has already occurred) under the terms of any of the Notes,
and the event of default results in all or any portion of the outstanding
principal plus unpaid interest and any other indebtedness under any of the Notes
(the "Default Amount") to be due and payable immediately, then APS shall, upon
the earlier of (i) the final date payment is demanded by the note holder;
provided, that the Surviving Corporation shall use its good faith efforts to
extend the deadline for the demand for payment, or (ii) twenty-five (25) days
after a written demand for payment has been made by the note holder (the
"Payment Period"), make an advance to the Surviving Corporation under the
Replacement Promissory Note in an amount equal to the Default Amount; provided,
however, that the Surviving Corporation shall use its commercially reasonable
efforts during the Payment Period to cure the event of default under any of the
Notes on equally favorable terms to the Surviving Corporation. For purposes of
this Section 7.14 only, the principal amount of the Replacement Promissory Note
(including the Default Amount) may exceed the Cap; provided, however, that the
principal amount of the Replacement Promissory Note that exceeds the Cap shall
be excluded from the Net Working Capital calculation for purposes of Section
7.12 of this Agreement.
Section 7.15. Non-Interference.
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(a) At all times during the Determination Period, Parent shall
use its commercially reasonable efforts to ensure that (i) Parent and Merger Sub
(or other FemPartners' subsidiary) operate the Company Existing Practices under
the terms of the Existing Management Agreements, (ii) neither Parent nor Merger
Sub (or other FemPartners' subsidiary) take (or fail to take) any action, if
such action or omission is done with the primary intent of causing (A) a
decrease in the amount of Retained Shares that would otherwise be distributed to
the Shareholders on the Distribution Date or (B) a decrease in the balance of
the Replacement Promissory Note pursuant to the operation of Section 7.12 or
Section 7.13, and (iii) neither Parent nor Merger Sub (or any other FemPartners'
subsidiary) take (or fail to take) any action, if such action or omission causes
Parent or Merger Sub to be in material breach of the Existing Management
Agreements. Notwithstanding anything in this Section 7.15 to the contrary, in
the event Parent or Merger Sub take (or fail to take) any action because such
action or omission is (i) required pursuant to any statute, rule, regulation or
other legal requirement or (ii) approved by the Joint Planning Board pursuant to
the terms of the Existing Management Agreement of any Existing Practice,
including, without limitation, approval of the budget of any Existing Practice,
then neither Parent nor Merger Sub will be in breach of any Existing Agreement
or this Agreement (regardless of whether such action or inaction causes a
decrease in the number of Retained Shares that would otherwise be distributed to
the Shareholders on the Distribution Date or a decrease in the balance of the
Replacement Promissory Note pursuant to the operation of Section 7.12 or Section
7.13).
(b) Parent and Merger Sub each agree that if either of them
materially violates any provision of this Agreement during the Determination
Period, or changes the terms of the Existing Management Agreements during the
Determination Period, and such violation or change has the direct effect of
reducing the number of Retained Shares that would otherwise be distributed to
the Shareholders on the Distribution Date or decreasing the amount payable under
the Replacement Promissory Note pursuant to the operation of Section 7.12 or
Section 7.13, then the Adjustment Calculations and the amounts calculated under
Section 7.12 and Section 7.13 shall be calculated as if such breach or change
had not occurred.
(c) Parent and Merger Sub acknowledge that certain of the
physicians in the Company Existing Practices owe the Company money because the
Company has advanced sums under the respective Existing Management Agreements in
excess of the difference between the monthly Practice Accrual Earnings and the
Service Fee (as defined in the respective Existing Management Agreements) (as
reflected on the Company's books as of June 30, 1999, and in the Side Letter
Agreements relating to the excess payments executed by certain physicians, the
"Advances"). Parent, Merger Sub and the Company each acknowledge that each
Advance may be increased, after the Closing, in order to correct any inaccurate
estimates of Adjustments (as defined in the respective Existing Management
Agreement) with respect to accounts receivable existing on June 30, 1999 (the
amount of such increase, if any, the "Excess Advances"). Solely for purposes of
construing Parent's and Merger Sub's obligations under this Section 7.15, if
Parent or Merger Sub (or any other FemPartners' subsidiary) fails or refuses to
collect that portion of the Excess Advances which exceed the lesser of (i)
$12,000 (per physician) or (ii) ten percent (10%) of the net book value of the
57
accounts receivable of the respective Company Existing Practice as of June 30,
1999, then, except for the practices of X.X. Xxxxxxxx, M.D. & Associates, Xxxxxx
Xxxxxxxx, M.D., P.A. and Xxxxxxxx X. Xxxxxx, M.D., P.A. (which are governed by
the Side Letter Agreements between the Company and such physicians), such
failure or refusal will not be considered a material breach of, or change to,
the respective Existing Management Agreements or this Agreement (regardless of
whether such action or inaction causes a decrease in the number of Retained
Shares that would otherwise be distributed to the Shareholders on the
Distribution Date or a decrease in the balance of the Replacement Promissory
Note pursuant to the operation of Section 7.12 or 7.13). Subject to the terms of
the Existing Management Agreements and the applicable Side Letter Agreements
entered into with the physicians with respect to the Advances and Excess
Advances, Parent and Merger Sub agree that they shall use their commercially
reasonable efforts (as though Parent and Merger Sub were not affiliated with the
physicians) to collect (y) the total amount of each Advance (subject to any
decrease, after the Closing, based solely on higher-than-estimated actual
collections of accounts receivable existing on June 30, 1999), and (z) the total
amount of any Excess Advance subject to the limitations above; provided,
however, that Parent and Merger Sub shall not be required to collect any amounts
that Xxxxxxxx X. Xxxxxx, M.D. would have received from Medicaid xxxxxxxx, but
that are no longer collectible solely because of the delay by the Company in
billing such Medicaid amounts. Any failure to use commercially reasonable
efforts (as though Parent and Merger Sub were not affiliated with the
physicians) to collect the amounts described in the immediately preceding
sentence will be considered a breach solely for the purposes of construing
Parent's and Merger Sub's obligations under this Section 7.15.
Section 7.16. Insurance. Parent and Merger Sub agree to maintain at all
times after the Closing Date and until July 1, 2001, a prior acts insurance
policy providing insurance coverage of the same scope, in the same amounts and
subject to the same deductibles as the Company's insurance in effect immediately
prior to the Closing Date.
ARTICLE VIII
CONDITIONS TO CLOSING
Section 8.1. Conditions to Each Party's Obligation to Effect the
Merger. The respective obligations of each party to effect the Merger shall be
subject to the fulfillment or waiver, if permissible, at or prior to the
Effective Time of the following conditions:
(a) no preliminary or permanent injunction or other order or
decree by any federal or state court which prevents the consummation of the
Merger shall have been issued and remain in effect (each party agreeing to use
its reasonable efforts to have any such injunction, order or decree lifted); and
(b) no action shall have been taken, and no statute, rule or
regulation shall have been enacted, by any state or federal government or
governmental agency in the United States which would prevent the consummation of
the Merger or make the consummation of the Merger illegal.
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Section 8.2. Conditions to Obligation of the Company to Effect the
Merger. Unless waived by the Company, the obligation of the Company to effect
the Merger shall be subject to the fulfillment at or prior to the Effective Time
of the following additional conditions:
(a) Parent and Merger Sub shall have performed in all material
respects (or in all respects in the case of any agreement containing any
materiality qualification) their agreements contained in this Agreement required
to be performed on or prior to the Closing Date;
(b) the representations and warranties of Parent and Merger
Sub contained in this Agreement shall be true and correct in all material
respects (or in all respects in the case of any representation or warranty
containing any materiality qualification) on and as of the date made and on and
as of the Closing Date as if made at and as of such date;
(c) since the date of this agreement, there shall have been no
changes that constitute, and no event or events shall have occurred which have
resulted in or constitute, a Material Adverse Effect;
(d) all governmental waivers, consents, orders, permit
transfers (including without limitation Environmental Permits) and approvals
legally required for the consummation of the Merger and transactions
contemplated hereby or to permit Parent to carry on the business of the Company
after Closing in accordance with past customs and practice shall have been
obtained and be in effect at the Closing Date, and no Governmental Authority
shall have promulgated any statute, rule or regulation which, when taken
together with all such promulgations, would materially impair the value of the
Company to Parent;
(e) all waivers, consents and approvals from third parties
necessary for the transfer of any material contracts, financial assurances and
any other rights and benefits in connection with the Merger, or necessary for
the consummation of the Merger and the transactions contemplated hereby shall
have been obtained and be in effect at the Closing Date;
(f) the boards of directors of Parent and Merger Sub shall
have authorized the execution, delivery and performance of the Agreement and all
related documents and agreements contemplated herein;
(g) Parent shall execute and deliver to each of Xxxxxxx
Xxxxxxx, Xxxxx Xxxx and Xxxx Xxxxxxx a Non-Competition Agreement, in the form
attached hereto as Exhibit H (collectively, the "Noncompetition Agreements");
(h) Merger Sub shall execute the Replacement Promissory
Note;
(i) Parent shall execute and deliver to APS a Guaranty of
performance under the Replacement Promissory Note, in the form attached hereto
as Exhibit I;
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(j) Parent and Merger Sub shall deliver executed
Certificate and Articles of Merger necessary to effect the Merger referred to
in Section 1.1;
(k) Parent shall have delivered to the Company written
documentation, satisfactory to the Company, that evidences the waiver by
Parent's preferred stock holders of any rights related to or arising from
Parent's execution of this Agreement and the consummation of the transactions
contemplated herein, if such right would not otherwise have arisen or existed,
including without limitation, any mandatory redemption rights, rights to receive
additional shares of capital stock of Parent upon conversion of preferred stock
or any other similar rights;
(l) the Company shall have completed its due diligence review
regarding the Parent and its business, operations, assets, liabilities, taxes,
insurance, contracts, prospects and environmental and other matters as the
Company deems relevant and the Company shall be satisfied, in its sole
discretion, with the results of such review;
(m) The Company shall have received a Co-Sale Rights
Agreement, in the form attached hereto as Exhibit J, executed by each holder of
Series A Preferred Stock of Parent;
(n) the Company shall have received a certificate executed on
behalf of Parent by the Chief Executive Officer or a Vice President of Parent
and on behalf of Merger Sub by the President or a Vice President of Merger Sub
with respect to (a) through (g) above;
(o) the Company shall have obtained approval of the Merger by
each of its shareholders in the form required under the Texas Business
Corporation Act; and
(p) the Company shall have received an Investors' Certificate
from each Shareholder, in the form attached hereto as Exhibit M.
Section 8.3. Conditions to Obligations of Parent and Merger Sub to
Effect the Merger. Unless waived by Parent and Merger Sub, the obligations of
Parent and Merger Sub to effect the Merger shall be subject to the fulfillment
at or prior to the Effective Time of the additional following conditions:
(a) the Company shall have performed in all material respects
(or in all respects in the case of any agreement containing any materiality
qualification) its agreements contained in this Agreement required to be
performed on or prior to the Closing Date;
(b) the representations and warranties of the Company
contained in this Agreement shall be true and correct in all material respects
(or in all respects in the case of any representation or warranty containing any
materiality qualification) on and as of the date made and on and as of the
Closing Date as if made at and as of such date;
60
(c) since the date hereof, there shall have been no changes
that constitute, and no event or events shall have occurred which have resulted
in or constitute, a Material Adverse Effect;
(d) all governmental waivers, consents, orders, permit
transfers (including without limitation Environmental Permits) and approvals
legally required for the consummation of the Merger and the transactions
contemplated hereby or to permit Parent to carry on the business of the Company
after Closing in accordance with past customs and practice shall have been
obtained and be in effect at the Closing Date, and no Governmental Authority
shall have promulgated any statute, rule or regulation which, when taken
together with all such promulgations, would materially impair the value of the
Company to Parent;
(e) all waivers, consents and approvals from third parties
necessary for the transfer of any material contracts, financial assurances and
any other rights and benefits in connection with the Merger, or necessary for
the consummation of the Merger and the transactions contemplated hereby shall
have been obtained and be in effect at the Closing Date;
(f) all transactions, contracts, agreements and guarantees
between the Company and any Shareholder or any Affiliate of the Company or any
Shareholder shall have been terminated and all amounts owed by the Shareholders
and their Affiliates to the Company shall have been paid in full, and the Parent
shall have received releases in form and substance satisfactory to Parent with
respect to same;
(g) all outstanding subscriptions, options, calls, share
purchase rights or voting trusts, proxies or other arrangements relating to the
capital stock of the Company shall be extinguished by the Closing Date, and the
Parent shall have received releases in form and substance satisfactory to Parent
with respect to same;
(h) the board of directors and shareholders of the Company
shall approve this Agreement and the closing of the transactions contemplated
herein;
(i) the officers and directors of the Company shall deliver to
Parent an instrument dated the Closing Date releasing the Company from any and
all claims of such officers and directors (except as to accrued compensation
prior to the Closing Date in accordance with the terms of the Agreement);
(j) Parent shall have completed its due diligence review
regarding the Company and its business, operations, assets, liabilities, taxes,
insurance, contracts, prospects and environmental and other matters as Parent
deems relevant and Parent shall be satisfied, in its sole discretion, with the
results of such review;
(k) Parent shall have received a lease agreement executed
by APS in the form attached hereto as Exhibit K;
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(l) Parent shall have received a Subordination Agreement
executed by APS in the form attached hereto as Exhibit L;
(m) Xxxxxxx Xxxxxxx, Xxxxx Xxxx and Xxxx Xxxxxxx shall
execute and deliver to Parent the Noncompetition Agreements;
(n) Parent shall have received an Investors' Certificate
from each Shareholder, in the form attached hereto as Exhibit M;
(o) Parent shall have received an Investor Rights
Agreement, as amended, executed by the Shareholders in the form attached
hereto as Exhibit N;
(p) Parent shall have received an executed Professional
Service Provider Security Agreement (including the Deposit Account Agreement,
the Closing Certificate of Managed Practice, the Secretary's Certificate with
the attached Board of Director Resolutions and the UCC-7 Financing Statement)
from each of the Company Existing Practices in the form attached hereto as
Exhibit O;
(q) Parent shall have received an executed Security Agreement
from each of the Company Existing Practices in the form attached hereto as
Exhibit P;
(r) the Company shall deliver executed Certificate and
Articles of Merger necessary to effect the Merger referred to in Section 1.1;
(s) Parent shall have received a certificate, dated within ten
(10) days of the Closing Date, of the Secretary of the State of Texas
establishing that the Company is in existence and is in good standing to
transact business in the state of incorporation;
(t) Parent shall have received the resignations of the
directors and officers of the Company; and
(u) Parent shall have received a certificate executed on
behalf of the Company by the President or Chief Executive Officer of the Company
and each of the Shareholders with respect to (a) through (i) above.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
Section 9.1. Termination. This Agreement may be terminated at any time
prior to the Effective Time as follows:
(a) The Company shall have the right to terminate this
Agreement:
(i) if the representations and warranties of Parent
and Merger Sub shall fail to be true and correct in all material
62
respects (or in all respects in the case of any representation or
warranty containing any materiality qualification) on and as of the
date made or, except in the case of any such representations and
warranties made as of a specified date, on and as of any subsequent
date as if made at and as of subsequent date and such failure shall not
have been cured in all material respects (or in all respects in the
case of any representation or warranty containing any materiality
qualification) within 30 days after written notice of such failure is
given to Parent by the Company;
(ii) if the Merger is not completed by August 31,
1999 (provided that the right to terminate this Agreement under this
Section 9.1(a)(ii) shall not be available to the Company if the failure
of the Company to fulfill any obligation to Parent under or in
connection with this Agreement has been the cause of or resulted in the
failure of the Merger to occur on or before such date);
(iii) if the Merger is enjoined by a final,
unappealable court order; or
(iv) if Parent or Merger Sub (A) fails to perform in
any material respect any of its covenants (or in all respects in the
case of any covenant containing any materiality qualification) in this
Agreement and (B) does not cure such default in all material respects
(or in all respects in the case of any covenant containing any
materiality qualification) within 30 days after notice of such default
is given to Parent by the Company.
(b) Parent shall have the right to terminate this Agreement;
(i) if the representations and warranties of the
Company shall fail to be true and correct in all material respects (or
in all respects in the case of any representation or warranty
containing any materiality qualification) on and as of the date made
or, except in the case of any such representations and warranties made
as of a specified date, on and as of any subsequent date as if made at
and as of such subsequent date and such failure shall not have been
cured in all material respects (or in all respects in the case of any
representation or warranty containing any materiality qualification)
within 30 days after written notice of such failure is given to the
Company by Parent;
(ii) if the Merger is not completed by August 31,
1999 (provided that the right to terminate this Agreement under this
Section 9.1(b)(ii) shall not be available to Parent if the failure of
Parent to fulfill any obligation to the Company under or in connection
with this Agreement has been the cause of or resulted in the failure of
the Merger to occur on or before such date);
(iii) if the Merger is enjoined by a final,
unappealable court order; or
(iv) if the Company (A) fails to perform in any
material respect (or in all respects in the case of any covenant
containing any materiality qualification) any of its covenants in this
Agreement and (B) does not cure such default in all material respects
63
(or in all respects in the case of any covenant containing any
materiality qualification) within 30 days after notice of such default
is given to the Company by Parent.
(c) The Company and Parent mutually agree.
Section 9.2. Effect of Termination. In the event of termination of this
Agreement by either Parent or the Company pursuant to the provisions of Section
9.1, this Agreement shall forthwith become void and there shall be no further
obligations on the part of the Company, Parent, Merger Sub or their respective
officers or directors (except as set forth in Sections 11.5 and 11.6, each of
which shall survive termination); provided, however, that nothing in this
Section 9.2 shall relieve either party from liability for any breach of this
Agreement.
Section 9.3. Amendment. This Agreement may not be amended except by
an instrument in writing signed on behalf of all of the parties.
Section 9.4. Extensions; Waiver. At any time prior to the Effective
Time, the parties hereto may (a) extend the time for the performance of any of
the obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant thereto and (c) waive compliance with any of the
agreements or conditions herein. Any agreement on the part of a party hereto to
any such extension or waiver shall be valid if set forth in an instrument in
writing signed on behalf of such party.
ARTICLE X
INDEMNIFICATION
Section 10.1. The Shareholders' Indemnity Obligations. The Shareholders
shall, severally and not jointly, indemnify and hold harmless the Company,
Parent and the Company's and Parent's respective officers, directors,
stockholders, employees, agents, representatives and Affiliates (each a "Parent
Indemnified Party") from and against any and all claims (including without
limitation, Environmental Claims malpractice claims, escheat laws and claims
pursuant to Sections 5.28 and 5.29), actions, causes of action, arbitrations,
proceedings, losses, damages, remediations, liabilities, strict liabilities,
judgments, fines, penalties and expenses (including, without limitation,
reasonable attorneys' fees) (collectively, the "Indemnified Amounts") paid,
imposed on or incurred by a Parent Indemnified Party, directly or indirectly,
relating to, resulting from or arising out of, or any allegation of a third
party of (a) any breach or misrepresentation in any of the representations and
warranties made by the Company in this Agreement, including without limitation
with respect to environmental matters, or any certificate or instrument
delivered in connection with this Agreement, (b) any violation or breach by the
Company of or default by the Company under the terms of this Agreement or any
certificate or instrument delivered in connection with this Agreement, (c) any
act or omission by the Company or any shareholder, officer, director, employee,
agent or representative of the Company, occurring on or prior to the Closing
Date (including any claim by a third party, including employees and customers,
arising out of or related to any act or omission by the Company or any
shareholder, officer, director, employee, agent or representative of the Company
64
occurring on or prior to the Closing Date) or (d) any Environmental Claim and/or
any violation of any Environmental Law if such Environmental Claim or violation
relates, directly or indirectly, to events, conditions, operations, facts or
circumstances which occurred or commenced on or prior to the Closing Date. The
obligation of Shareholders to provide indemnification to a Parent Indemnified
Party hereunder based on a breach of representation or warranty shall arise
without regard to any materiality or knowledge qualifier set forth in such
representation or warranty, except for any claim based on fraud. For purposes of
this Section 10.1, Indemnified Amounts shall include without limitation those
Indemnified Amounts ARISING OUT OF THE STRICT LIABILITY (INCLUDING BUT NOT
LIMITED TO STRICT LIABILITY ARISING PURSUANT TO ENVIRONMENTAL LAWS) OR
NEGLIGENCE OF ANY PARTY, INCLUDING ANY PARENT INDEMNIFIED PARTY, WHETHER SUCH
NEGLIGENCE BE SOLE, JOINT OR CONCURRENT, ACTIVE OR PASSIVE.
Section 10.2. Parent's Indemnity Obligations. Parent and Merger Sub
shall indemnify and hold harmless the Shareholders and the Shareholders' agents,
representatives and Affiliates (each a "Shareholders' Indemnified Party") from
and against any and all Indemnified Amounts incurred by a Shareholders'
Indemnified Party as a result of (a) any breach or misrepresentation in any of
the representations and warranties made by or on behalf of Parent or Merger Sub
in this Agreement or any certificate or instrument delivered in connection with
this Agreement, (b) any violation or breach by Parent or Merger Sub of or
default by Parent under the terms of this Agreement or any certificate or
instrument delivered in connection with this Agreement, (c) any act or omission
by the Parent or any Parent Indemnified Party, occurring after the Closing Date
(including any claim by a third party, including employees and customers,
arising out of or related to any act or omission by the Parent or any Parent
Indemnified Party occurring after the Closing Date) or (d) any Environmental
Claim and/or any violation of any Environmental Law if such Environmental Claim
or violation relates, directly or indirectly, to events, conditions, operations,
facts or circumstances which occurred or commenced after the Closing Date. The
obligation of Parent to provide indemnification to a Shareholders' Indemnified
Party hereunder based on a breach of representation or warranty shall arise
without regard to any materiality or knowledge qualifier set forth in such
representation or warranty, except for any claim based on fraud. For purposes of
this Section 10.2, Indemnified Amounts shall include without limitation those
Indemnified Amounts ARISING OUT OF THE STRICT LIABILITY (INCLUDING BUT NOT
LIMITED TO STRICT LIABILITY ARISING PURSUANT TO ENVIRONMENTAL LAWS) OR
NEGLIGENCE OF ANY PARTY, INCLUDING ANY SHAREHOLDERS' INDEMNIFIED PARTY, WHETHER
SUCH NEGLIGENCE BE SOLE, JOINT OR CONCURRENT, ACTIVE OR PASSIVE. Notwithstanding
the foregoing, neither Parent nor Merger Sub shall indemnify the Shareholders or
Shareholders' Indemnified Parties under subsections (c) or (d) above for any
reduction in the value of the Parent Common Stock issued as Merger Consideration
pursuant to this Agreement based on an event or circumstance which occurs after
the Closing Date.
Section 10.3. Indemnification Procedures. All claims for
indemnification under this Agreement shall be asserted and resolved as follows:
65
(a) A party claiming indemnification under this Agreement (an
"Indemnified Party") shall with reasonable promptness (i) notify the party from
whom indemnification is sought (the "Indemnifying Party") of any third-party
claim or claims asserted against the Indemnified Party ("Third Party Claim") for
which indemnification is sought and (ii) transmit to the Indemnifying Party a
copy of all papers served with respect to such claim (if any) and a written
notice ("Claim Notice") containing a description in reasonable detail of the
nature of the Third Party Claim, an estimate of the amount of damages
attributable to the Third Party Claim to the extent feasible (which estimate
shall not be conclusive of the final amount of such claim) and the basis of the
Indemnified Party's request for indemnification under this Agreement.
Within 15 days after receipt of any Claim Notice (the "Election
Period"), the Indemnifying Party shall notify the Indemnified Party (i) whether
the Indemnifying Party disputes its potential liability to the Indemnified Party
with respect to such Third Party Claim and (ii) whether the Indemnifying Party
desires, at the sole cost and expense of the Indemnifying Party, to defend the
Indemnified Party against such Third Party Claim.
If the Indemnifying Party notifies the Indemnified Party within the
Election Period that the Indemnifying Party elects to assume the defense of the
Third Party Claim, then the Indemnifying Party shall have the right to defend,
at its sole cost and expense, such Third Party Claim by all appropriate
proceedings, which proceedings shall be prosecuted diligently by the
Indemnifying Party to a final conclusion or settled at the discretion of the
Indemnifying Party in accordance with this Section 10.3(a). The Indemnifying
Party shall have full control of such
66
defense and proceedings. The Indemnified
Party is hereby authorized, at the sole cost and expense of the Indemnifying
Party, to file, during the Election Period, any motion, answer or other
pleadings that the Indemnified Party shall reasonably deem necessary or
appropriate to protect its interests. If requested by the Indemnifying Party,
the Indemnified Party reasonably agrees to cooperate with the Indemnifying Party
and its counsel in contesting any Third Party Claim that the Indemnifying Party
elects to contest, including, without limitation, the making of any related
counterclaim against the person asserting the Third Party Claim or any
cross-complaint against any person. Except as otherwise provided herein, the
Indemnified Party may participate in, but not control, any defense or settlement
of any Third Party claim controlled by the Indemnifying Party pursuant to this
Section 10.3 and shall bear its own costs and expenses with respect to such
participation.
If the Indemnifying Party fails to notify the Indemnified Party within
the Election Period that the Indemnifying Party elects to defend the Indemnified
Party pursuant to the preceding paragraph, or if the Indemnifying Party elects
to defend the Indemnified Party but fails to prosecute or settle the Third Party
Claim as herein provided or if the Indemnified Party reasonably objects to such
election on the grounds that counsel for such Indemnified Party cannot represent
both the Indemnified Party and the Indemnifying Parties because such
representation would be reasonably likely to result in a conflict of interest,
then the Indemnified Party shall have the right to defend, at the sole cost and
expense of the Indemnifying Party, the Third Party Claim by all appropriate
proceedings, which proceedings shall be promptly and vigorously prosecuted by
the Indemnified Party to a final conclusion or settled. In such a situation, the
Indemnified Party shall have full control of such defense and proceedings and
the Indemnifying Party may participate in, but not control, any defense or
settlement controlled by the Indemnified Party pursuant to this Section 10.3,
and the Indemnifying Party shall bear its own costs and expenses with respect to
such participation.
The Indemnifying Party shall not settle or compromise any Third Party
Claim unless (i) the terms of such compromise or settlement require no more than
the payment of money (i.e., such compromise or settlement does not require the
Indemnified Party to admit any wrongdoing or take or refrain from taking any
action), (ii) the full amount of such monetary compromise or settlement will be
paid by the Indemnifying Party, and (iii) the Indemnified Party receives as part
of such settlement a legal, binding and enforceable unconditional satisfaction
and/or release, in form and substance reasonably satisfactory to it, providing
that such Third Party Claim and any claimed lability of the Indemnified Party
with respect thereto is being fully satisfied by reason of such compromise or
settlement and that the Indemnified Party is being released from any and all
obligations or liabilities it may have with respect thereto. The Indemnified
Party shall not settle or admit liability to any Third Party Claim without the
prior written consent of the Indemnifying Party unless (x) the Indemnifying
Party has disputed its potential liability to the Indemnified Party, and such
dispute either has not been resolved or has been resolved in favor of the
Indemnifying Party or (y) the Indemnifying Party has failed to respond to the
Indemnified Party's Claim Notice.
(b) In the event any Indemnified Party should have a claim
against any Indemnifying Party hereunder that does not involve a Third Party
Claim, the Indemnified Party shall transmit to the Indemnifying Party a written
notice (the "Indemnity Notice") describing in reasonable detail the nature of
the claim, an estimate of the amount of damages attributable to such claim to
the extent feasible (which estimate shall not be conclusive of the final amount
of such claim) and the basis of the Indemnified Party's request for
indemnification under this Agreement.
Section 10.4. Determination and Payment of Indemnified Amounts.
(a) Determination of Indemnified Amounts. Subject to the
limitations on Indemnified Amounts set forth in Section 10.7, the Indemnified
Amounts payable by an Indemnifying Party hereunder shall be determined (i) by
binding arbitration pursuant to Section 11.6 hereof or (ii) if no party requests
such arbitration, then by (A) the written agreement of the parties, (B)
mediation, (C) final judgment or decree of any court of competent jurisdiction,
or (D) by any other means agreed to in writing by the parties. A judgment or
decree of a court shall be deemed final when the time for appeal, if any, shall
have expired and no appeal shall have been taken or when all appeals taken have
been fully determined.
(b) Payment of Indemnified Amounts. For the purpose of
satisfying any Indemnified Amounts under this Article X, the Parent Common Stock
shall be conclusively valued at a per share price of $7.00 per share. Subject in
all cases to the limitations on liability set forth in Sections 10.5 and 10.6,
the Indemnifying Party shall pay to the Indemnified Party the Indemnified Amount
to which the Indemnified Party may become entitled by reason of this Agreement,
payable in the following manner:
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(i) Indemnified Amounts Payable by Parent. Parent
may, in its sole discretion, pay an Indemnified Amount by issuing
additional shares of Parent Common Stock or by making a cash payment to
the Shareholders' Indemnified Parties, such payment to be made within
fifteen (15) days after such Indemnified Amount is finally determined
pursuant to this Section 10.4.
(ii) Indemnified Amounts Payable by the Shareholders
Prior to the Distribution Date. With respect to the aggregate of all
Indemnified Amounts owed by the Shareholders that are determined prior
to the Distribution Date, Shareholders shall (subject to subsection
(iv) below) fully satisfy such Indemnified Amounts by immediately
forfeiting their right to receive on the Distribution Date that number
of Retained Indemnity Shares which fully satisfies such Indemnified
Amount; provided, however, that the Shareholders shall not be required
to satisfy or pay prior to the Distribution Date such finally
determined Indemnified Amounts to the extent that such amounts exceed
the value of the Retained Indemnity Shares; provided further, that any
portion of such finally determined Indemnified Amounts which exceeds
the value of the Retained Indemnity Shares (the "Final Suspended
Indemnified Amounts") shall be held in abeyance pending final
calculation of the Earnout Distribution on the Distribution Date.
Subject to subsection (iv), on the Distribution Date, the Shareholders
shall satisfy any Final Suspended Indemnified Amounts by forfeiting the
right to receive all or any portion of shares of Parent Common Stock
constituting the Earnout Distribution as provided in Section 3.2.
(iii) Indemnified Amounts Asserted by Parent
Indemnified Parties Prior to the Distribution Date, but Not Finally
Determined Prior to the Distribution Date. With respect to the
aggregate of all Indemnified Amounts first asserted prior to the
Distribution Date, but that are not finally determined on or before the
Distribution Date (the "Pending Indemnified Amounts"), a sufficient
number of shares of Parent Common Stock, otherwise distributable to the
Shareholders on the Distribution Date (including the Retained Shares),
shall not be distributed to the Shareholders but shall instead be held
by Parent in escrow pending (and shall be distributed only upon) final
determination of such Pending Indemnified Amounts. Shares held by
Parent in escrow after the Distribution Date pursuant to this
subsection (iii) shall first be comprised of any Retained Indemnity
Shares not forfeited pursuant to subsection (ii) above and next be
comprised of any shares of Parent Common Stock constituting the Earnout
Distribution, if any, that were not forfeited pursuant to subsection
(ii) above.
(iv) Indemnified Amounts Payable to Parent
Indemnified Parties Which Cannot be Satisfied by the Retained Indemnity
Shares and the Shares of Parent Common Stock Constituting the Earnout
Distribution. With respect to the aggregate of all Indemnified Amounts
payable to Parent Indemnified Parties which (A) exceed the Retained
Indemnity Shares and the shares of Parent Common Stock constituting the
Earnout Distribution and/or (B) are asserted after such shares have
been distributed to the Shareholders, APS shall,
68
subject to APS'
limitation on liability set forth in Section 10.5, solely be
responsible for paying 64% of such Indemnified Amounts when finally
determined (except for Indemnified Amounts exclusively arising directly
out of a breach or misrepresentation under Sections 5.2 and 5.4 of this
Agreement, which shall be 100% of such Indemnified Amounts when finally
determined). In the event that APS no longer owns a sufficient number
of shares of Parent Common Stock to fully satisfy its maximum
obligation under this subsection (iv), then (and only then) shall APS
be required to pay cash to satisfy such Indemnified Amounts (up to its
maximum liability provided in Section 10.5 and as further limited in
this subsection (iv)).
Section 10.5. Limitation of Shareholders' Liability.
(a) Notwithstanding anything to the contrary contained in
Article X, the aggregate liability of each Shareholder (other than APS) for any
event or occurrence giving rise to an Indemnified Amount payable by that
Shareholder under Section 10.1 shall be limited to that Shareholders'
proportionate share of the Retained Shares plus any other shares of Parent
Common Stock constituting the Earnout Distribution, multiplied by $7, payable as
set forth in Section 10.4. The shares of Parent Common Stock transferred to the
Parent Indemnified Parties hereunder shall be free and clear of all liens,
claims, options, pledges, encumbrances, restrictions and adverse interest of any
kind or nature whatsoever. The Shareholders shall each have the option of
satisfying their respective indemnification obligations under Section 10.1 by
using cash instead of Parent Common Stock.
(b) Notwithstanding anything to the contrary contained in
Article X, the aggregate liability of APS for any event or occurrence giving
rise to an Indemnified Amount payable by APS under Section 10.1 shall be limited
to the number of shares of Parent Common Stock issued to APS as part of the
Merger Consideration, multiplied by $7, payable as set forth in Section 10.4.
The shares of Parent Common Stock transferred to the Parent Indemnified Parties
hereunder shall be free and clear of all liens, claims, options, pledges,
encumbrances, restrictions and adverse interest of any kind or nature
whatsoever. In accordance with Section 10.4(b)(iv) APS shall have the option of
satisfying its respective indemnification obligations under Section 10.1 by
using cash instead of Parent Common Stock. Notwithstanding anything to the
contrary contained in Article X, APS shall never be required to pay cash
pursuant to this Article X, except in instances where, and only to the extent
that (i) APS is obligated to pay an Indemnified Amount under this Article X
after the Distribution Date, (ii) the aggregate amount of APS' prior payments
under this Article X is less than the maximum aggregate liability of APS
determined pursuant to the first sentence of this subsection (b), (iii) APS has
sold, transferred or otherwise disposed of any of its Parent Common Stock, and
(iv) as a result of such disposition(s), APS does not have a sufficient number
of shares of Parent Common Stock to satisfy such Indemnified Amount.
(c) Parent Indemnified Parties are entitled to indemnification
pursuant to Section 10.1 only to the extent that the amount of any Indemnified
Amount, individually or in the aggregate, exceeds $100,000, and then to the full
amount of such Indemnified Amount, including the first $100,000.
69
Section 10.6. Limitation of Parent's Liability.
(a) Notwithstanding anything to the contrary contained in
Article X, the aggregate liability of Parent for any event or occurrence giving
rise to an Indemnified Amount payable by Parent under Section 10.2 shall be
limited to the number of shares of parent Common Stock issued to APS as part of
the Merger Consideration, multiplied by $7, payable as set forth in Section
10.4.
(b) Company Indemnified Parties are entitled to
indemnification pursuant to Section 10.2 only to the extent that the amount of
any Indemnified Amount, individually or in the aggregate, exceeds $100,000 and
then to the full amount of such Indemnified Amount, including the first
$100,000.
Section 10.7. Limitation on Indemnified Amounts. Notwithstanding any
provision of this Article X to the contrary, Indemnified Amounts owed by an
Indemnifying Party to an Indemnified Party shall be reduced by the amount of any
mitigating recovery or benefit (net of reasonable expenses and tax and other
costs incurred in obtaining such recovery or benefit) an Indemnified Party shall
have received or otherwise enjoyed with respect thereto from any recovery under
any insurance policies, without regard to whether the Indemnified Party or
another person paid the premiums therefor. If such a mitigating recovery is
received by an Indemnified Party after it receives payment under this Agreement
with respect to Indemnified Amounts, then a refund equal in aggregate amount to
the mitigating recovery, net of reasonable expenses and tax or other costs
incurred in obtaining recovery, shall be made promptly to the Indemnifying
Party. Notwithstanding the foregoing or any other provision of this Agreement,
no Parent Indemnified Person shall be entitled to indemnification hereunder with
respect to an indemnifiable claim to the extent such claim directly causes (i) a
reduction to the principal amount of the Replacement Promissory Note or an
offset against interest otherwise due and payable thereunder as a result of the
operation of Section 7.12 of this Agreement, or (ii) a reduction in the Earnout
Distribution pursuant to Section 3.2 of this Agreement.
Section 10.8. Right of Subrogation. Upon payment by an Indemnifying
Party of an Indemnified Amount, the Indemnifying Party shall, with respect to
the amount paid, be subrogated to all causes of action, rights of recovery
and/or enforcement rights that the Indemnified Party may have under any
contract, agreement, instrument or understanding (other than this Agreement and
the other agreements entered into in connection herewith) to which an
Indemnified Party is a party or otherwise receives benefits.
ARTICLE XI
GENERAL PROVISIONS
Section 11.1. Survival. The representations and warranties set forth in
this Agreement and in any certificate or instrument delivered in connection
70
herewith shall be continuing and shall survive the Closing for a period of two
(2) years following the Closing Date; provided, however, that in the case of all
representations and warranties, there shall be no such termination with respect
to any such representation or warranty as to which a bona fide claim has been
asserted by written notice of such claim delivered to the party or parties
making such representation or warranty prior to the expiration of the survival
period; provided, further, that the representations and warranties set forth in
Sections 4.2, 4.8, 4.12, 4.13, 4.15, 4.22, 5.2, 5.8, 5.12, 5.13, 5.15, and 5.23
hereof shall survive the Closing for four (4) years (provided, however, that
with respect to Section 4.8 and 5.8, the representations contained therein do
not extend past two years after the Closing Date with respect to malpractice
claims against or related to the Parent Existing Practices or the Company
Existing Practices). The covenants and agreements, including but not limited to,
indemnification obligations, set forth in this Agreement and in any certificate
or instrument delivered in connection herewith shall be continuing and survive
Closing; provided, however, that the indemnification obligations of the parties
hereto (i) set forth in Sections 10.1(a) and 10.2(a) with respect to a breach of
a representation or warranty shall terminate at the time such particular
representation or warranty shall terminate, and (ii) set forth in Sections
10.1(b), (c), and (d) and 10.2(b), (c) and (d) shall terminate three years
following the Closing Date.
Section 11.2. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally, mailed by
registered or certified mail (return receipt requested) or sent via facsimile 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 Parent or Merger Sub to:
FemPartners, Inc.
0000 Xxxx Xxx Xxxxxxxxx, Xxxxx 000
Xxxxxxx, Xxxxx 00000
Attention: Xxxxxxx X. Xxxxxx
Telecopy: 713/512-8080
with a copy to:
Xxxxx Liddell & Xxxx LLP
0000 Xxxxx Xxxxx
000 Xxxxxx
Xxxxxxx, Xxxxx 00000
Attention: H. Xxxxxxx Xxxxxxxxx
Telecopy: 713/223-3717
(b) if to the Company (prior to Closing) or the Shareholders, to:
Syntera HealthCare Corporation
0000 X. Xxxxxxx xx Xxxxx Xxxxxxx, Xxxxx X-000
Xxxxxx, Xxxxx 00000
Attention: President
Telecopy: 512/314-4398
71
with a copy, in the case of notice to the Company, to:
Akin, Gump, Strauss, Xxxxx & Xxxx, L.L.P.
000 Xxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
Attention: Xxx XxXxxx
Telecopy: 512/703-1111
Section 11.3. Interpretation. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way or
interpretation of this Agreement. In this Agreement, unless a contrary intention
appears, (i) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
Article, Section or other subdivision and (ii) reference to any Article or
Section means such Article or Section hereof. No provision of this Agreement
shall be interpreted or construed against any party hereto solely because such
party or its legal representative drafted such provision. When used herein, the
phrases "Company's knowledge," "knowledge of the Company" or similar words or
phrases shall exclusively refer to the current actual knowledge of the following
persons: Xxx Xxxxxxx, Xxxxx Xxxx, Xxxx Xxxxxxx, Xxxx Xxxxx and Xxxxxxx Xxxx.
Furthermore, when used herein, the phrases "Parent's knowledge," "knowledge of
Parent" or similar words or phrases shall exclusively refer to the current
actual knowledge of the following persons: Xxxxxxx Xxxxxx, Xxxxxxxx Xxxxxxxxxxx,
Xxxx Xxxxxxxx and Xxxx Xxxxxx.
Section 11.4. Miscellaneous. This Agreement (including the documents
and instruments referred to herein) (a) constitutes the entire agreement and
supersedes all other prior agreements and understandings, both written and oral,
among the parties, or any of them, with respect to the subject matter hereof
(including, without limitation, that certain Letter of Intent dated March 24,
1999, and any amendments thereto or replacements thereof), and (b) shall not be
assigned by operation of law or otherwise except that Merger Sub may assign this
Agreement to any other wholly-owned Subsidiary of Parent, but no such assignment
shall relieve the Parent or the Merger Sub, as the case may be, of its
obligations hereunder.
Section 11.5. Governing Law. THIS AGREEMENT SHALL BE GOVERNED IN ALL
RESPECTS, INCLUDING VALIDITY, INTERPRETATION AND EFFECT, BY THE LAWS OF THE
STATE OF TEXAS APPLICABLE TO CONTRACTS EXECUTED AND TO BE PERFORMED WHOLLY
WITHIN SUCH STATE.
Section 11.6. Binding Arbitration.
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(a) General. Notwithstanding any provision of this Agreement
to the contrary, upon the request of any party (defined for the purpose of this
provision to include affiliates, principles and agents of any such party), any
dispute, controversy or claim (under any theory of law, equity or otherwise,
except only for claims exclusively for injunctive relief) arising out of,
relating to, or in connection with, this Agreement or any agreement executed in
connection herewith or contemplated hereby, or the breach, termination,
interpretation, or validity hereof or thereof (hereinafter referred to as a
"Dispute"), shall be finally resolved by mandatory and binding arbitration in
accordance with the terms hereof; provided, however, that any dispute relating
to the non-payment of the Replacement Promissory Note or the provisions of
Section 3.2 or the provisions of Section 7.12 shall not be subject to the
provisions of this Section. Any party to this Agreement may bring an action in
court to compel arbitration of any Dispute. Any party who fails or refuses to
submit any Dispute to binding arbitration following a lawful demand by the
opposing party shall bear all costs and expenses incurred by the opposing party
in compelling arbitration of such Dispute.
(b) Governing Rules. The arbitration shall be conducted in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association in effect at the time of the arbitration, except as they may be
modified herein or by mutual agreement of the parties. The seat of the
arbitration shall be Dallas, Texas. Notwithstanding Section 11.5, the
arbitration and this clause shall be governed by the Federal Arbitration Act, 9
U.S.C. xx.xx. 1 et seq. (the "Federal Arbitration Act"). The arbitrator shall
award all reasonable and necessary costs (including the reasonable fees and
expenses of counsel) incurred in conducting the arbitration to the prevailing
party in any such Dispute. The parties expressly waive all rights whatsoever to
file an appeal against or otherwise to challenge any award by the arbitrators
hereunder; provided, that the foregoing shall not limit the rights of either
party to bring a proceeding in any applicable jurisdiction to confirm, enforce
or enter judgment upon such award (and the rights of the other party, if such
proceeding is brought to contest such confirmation, enforcement or entry of
judgment, but only to the extent permitted by the Federal Arbitration Act).
(c) No Waiver; Preservation of Remedies. No provision of, nor
the exercise of any rights under this Agreement shall limit the right of any
party to apply for injunctive relief or similar equitable relief with respect to
the enforcement of this Agreement or any agreement executed in connection
herewith or contemplated hereby, and any such action shall not be deemed an
election of remedies. Such rights can be exercised at any time except to the
extent such action is contrary to a final award or decision in any arbitration
proceeding. The institution and maintenance of an action for injunctive relief
or similar equitable relief shall not constitute a waiver of the right of any
party, including without limitation the plaintiff, to submit any Dispute to
arbitration nor render inapplicable the compulsory arbitration provisions of
this Agreement.
(d) Arbitration Proceeding. In addition to the authority
conferred on the arbitration tribunal by the rules specified above, the
arbitration tribunal shall have the authority to order reasonable discovery,
including the deposition of party witnesses and production of documents. The
arbitral award shall be in writing, state the reasons for the award, and be
final and binding on the parties. All statutes of limitations that would
otherwise be applicable shall apply to
73
any arbitration proceeding. Any
attorney-client privilege and other protection against disclosure of
confidential information, including without limitation any protection afforded
the work-product of any attorney, that could otherwise be claimed by any party
shall be available to and may be claimed by any such party in any arbitration
proceeding. No party waives any attorney-client privilege or any other
protection against disclosure of confidential information by reason of anything
contained in or done pursuant to or in connection with this Agreement. Each
party agrees to keep all Disputes and arbitration proceedings strictly
confidential, except for disclosures of information to the parties' legal
counsel or auditors or those required by applicable law. The arbitrators shall
determine the matters in dispute in accordance with the substantive law of
Texas, without regard to conflict of law rules.
(e) Appointment of Arbitrators. The arbitration shall be
conducted by three (3) arbitrators. The party initiating arbitration (the
"Claimant") shall appoint its arbitrator in its request for arbitration (the
"Request"). The other party (the "Respondent") shall appoint its arbitrator
within thirty (30) days after receipt of the Request and shall notify the
Claimant of such appointment in writing. If the Respondent fails to appoint an
arbitrator within such thirty (30) day period, the arbitrator named in the
Request shall decide the controversy or claim as sole arbitrator. Otherwise, the
two (2) arbitrators appointed by the parties shall appoint a third (3rd)
arbitrator within thirty (30) days after the Respondent has notified Claimant of
the appointment of the Respondent's arbitrator. When the third (3rd) arbitrator
has accepted the appointment, the two (2) party-appointed arbitrators shall
promptly notify the parties of the appointment. If the two (2) arbitrators
appointed by the parties fail to appoint a third (3rd) arbitrator or so to
notify the parties within the time period prescribed above, then the appointment
of the third (3rd) arbitrator shall be made by the American Arbitration
Association, which shall promptly notify the parties of the appointment. The
third (3rd) arbitrator shall act as Chair of the panel.
(f) Other Matters. This arbitration provision constitutes the
entire agreement of the parties with respect to its subject matter and
supersedes all prior discussions, arrangements, negotiations and other
communications on dispute resolution. This arbitration provision shall survive
any termination, amendment, renewal, extension or expiration of this Agreement
or any agreement executed in connection herewith or contemplated hereby unless
the parties otherwise expressly agree in writing. The obligation to arbitrate
any dispute shall be binding upon the successors and assigns of each of the
parties.
Section 11.7. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
Section 11.8. Entire Agreement. This Agreement constitutes the entire
agreement among the parties with respect to the subject matter hereof and
supersedes all other prior agreements and understandings, both written and oral,
among the parties or any of them with respect to the subject matter hereof.
Section 11.9. Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to confer upon any other person any
rights or remedies of any nature whatsoever under or by reason of this
Agreement; provided, however, that the parties hereto agree that the
Shareholders (including, without limitation, APS) are intended third-party
beneficiaries under this Agreement and, accordingly, Shareholders holding, in
the aggregate, greater than twenty five percent (25%) of the previously
distributed portion of the Merger Consideration shall be entitled to enforce the
rights conferred upon the Shareholders under this Agreement.
Section 11.10. Enforcement of the Agreement. The parties hereto agree
that irreparable damage would occur in the event that any of the provisions of
this Agreement were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions hereof.
Section 11.11. Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provisions of this Agreement, which shall remain in full force and
effect.
[Signature Page Follows]
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IN WITNESS WHEREOF, Parent, Merger Sub, and the Company have executed
and delivered this Agreement effective as of the date first written above.
FEMPARTNERS, INC.
By: /s/ Xxxxxxx X. Xxxxxx
-----------------------------------
Xxxxxxx X. Xxxxxx, Executive Vice President
FEMPARTNERS OF CENTRAL TEXAS, INC.
By: /s/ Xxxxxxx X. Xxxxxx
-----------------------------------
Xxxxxxx X. Xxxxxx, Executive Vice President
SYNTERA HEALTHCARE CORPORATION
By: /s/ Xxxx X. Xxxxxxx
-------------------------
Name: Xxxx X. Xxxxxxx
-------------------------
Title: Senior Vice President
-------------------------
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EXHIBIT A
Glossary
For purposes of this Agreement, the following terms shall have the
meaning specified or referred to below when capitalized (or if not capitalized,
unless the context clearly requires otherwise) when used in this Agreement.
"Business Facility" includes any property (whether real or personal)
which Parent, the Company or any of their Subsidiaries currently leases,
operates, or owns or manages in any manner or which the Company or any of their
Subsidiaries or any of their respective organizational predecessors formerly
leased, operated, owned or managed in any manner.
"Company Intellectual Property" includes all fictitious business names,
trade names, brand names, registered and unregistered trademarks, service marks
and applications, all patents and patent applications, all copyrights in both
published works and unpublished works, and all inventions, processes, formulas,
patterns, designs, know-how, trade secrets, confidential information, software,
technical information, process technology, plans, drawings and blue prints
owned, used or licensed by the Company or its Subsidiaries as licensee or
licensor.
"Environmental Claim" means any claim; litigation; demand; action;
cause of action; suit; loss; cost, including, but not limited to, attorneys'
fees, diminution in value, and expert's fees; damage; punitive damage; fine,
penalty, expense, liability, criminal liability, strict liability, judgment,
governmental or private investigation and testing; notification of status of
being potentially responsible for clean-up of any facility or for being in
violation or in potential violation of any Requirement of Environmental Law;
proceeding; consent or administrative orders, agreements or decrees; lien;
personal injury or death of any person; or property damage, whether threatened,
sought, brought or imposed, that is related to or that seeks to recover losses,
damages, costs, expenses and/or liabilities related to, or seeks to impose
liability for: (i) improper use or treatment of wetlands, pinelands or other
protected land or wildlife; (ii) noise; (iii) radioactive materials (including
naturally occurring radioactive materials ["NORM"]; (iv) explosives; (v)
pollution, contamination, preservation, protection, decontamination, remediation
or clean-up of the air, surface water, groundwater, soil or protected lands;
(vi) solid, gaseous or liquid waste generation, handling, discharge, release,
threatened release, treatment, storage, disposal or transportation; (vii)
exposure of persons or property to Materials of Environmental Concern and the
effects thereof; (viii) the release or threatened release (into the indoor or
outdoor environment), generation, extraction, mining, beneficiating,
manufacture, processing, distribution in commerce, use, application, transfer,
transportation, treatment, storage, disposal or Remediation of Materials of
Environmental Concern; (ix) injury to, death of or threat to the health or
safety of any person or persons caused directly or indirectly by Materials of
Environmental Concern; (x) destruction caused directly or indirectly by
Materials of Environmental Concern or the release or threatened release of any
Materials of Environmental Concern or any property (whether real or personal);
(xi) the implementation of spill prevention and/or disaster plans relating to
Material of Environmental Concern; (xiii) community right-to-know and other
disclosure laws; or (xiii) maintaining, disclosing or reporting information to
1
Governmental Authorities of any other third person under any Environmental Law.
The term, "Environmental Claim," also includes, without limitation, any losses,
damages, costs, expenses and/or liabilities incurred in testing.
"Environmental Law" means any federal, state, local or foreign law,
statute, ordinance, rule, regulation, code, license, permit, authorization,
approval, consent, legal doctrine, guidance document, order, consent agreement,
order or consent judgment, decree, injunction, requirement or agreement with any
governmental entity or any judicial or administrative decision relating to (x)
the protection, preservation or restoration of the environment (including,
without limitation, air, water, vapor, surface water, groundwater, drinking
water supply, surface land, subsurface land, plant and animal life or any other
natural resource) or to human health or safety, (y) the exposure to, or the use,
storage, recycling, treatment, generation, transportation, processing, handling,
labeling, application, production, release or disposal of Materials of
Environmental Concern, in each case as amended from time to time, or (z) health,
worker protection or community's right to know. The term "Environmental Law"
includes, without limitation, (i) the Federal Comprehensive Environmental
Response Compensation and Liability Act of 1980, the Superfund Amendments and
Reauthorization Act, the Federal Water Pollution Control Act of 1972, the
Federal Clean Air Act, the Federal Clean Water Act, the Federal Resource
Conservation and Recovery Act of 1976 (including the hazardous and Solid Waste
Amendments thereto), the Federal Solid Waste Disposal Act and the Federal Toxic
Substances Control Act, the Federal Insecticide, Fungicide and Rodenticide Act,
and the Federal Occupational Safety and Health Act of 1970, each as amended from
time to time, and (ii) any common law or equitable doctrine (including, without
limitation, injunctive relief and tort doctrines such as negligence, nuisance,
trespass and strict liability) that may impose liability or obligations for
injuries or damages due to, or threatened as a result of, the presence of,
effects of or exposure to any Materials of Environmental Concern.
"Entity" means any corporation (including any non-profit corporation),
general partnership, limited partnership, joint venture, estate, trust,
cooperative, union, committee, company or other enterprise, association,
organization or entity of any nature, other than a Governmental Authority.
"Environmental Permits" means all permits, licenses, certificates,
registrations, identification numbers, applications, consents, approvals,
variances, notices of intent, and exemptions necessary for the ownership, use
and/or operation of any current Business Facility or to conduct the Company's
business as currently conducted in compliance with Requirements of Environmental
Laws.
"GAAP" means generally accepted accounting principals applied on a
consistent basis.
"Governmental Authority" means any foreign governmental authority, the
United States of America, any State of the United States, any local authority
and any political subdivision of any of the foregoing, any multi-national
organization or body, any agency, department, commission, board, bureau, court
or other authority thereof, or any quasi-governmental or private body
exercising, or purporting to exercise, any executive, legislative, judicial,
administrative, police, regulatory or taxing authority or power of any nature.
2
"Investor Rights Agreement" means the Agreement dated effective as of
October 31, 1997 between Parent and all the outstanding shareholders of Parent,
as amended from time to time.
"Material Adverse Effect" means any event, occurrence, fact, condition,
change, development or effect that is or could reasonably be anticipated to be
materially adverse to the business, assets (including intangible assets),
liabilities, financial condition, results of operations, properties (including
intangible properties) or business prospects of the Company or Parent and all of
their Subsidiaries taken as a whole.
"Materials of Environmental Concern" means: (i) those substances
included within the statutory and/or regulatory definitions or listings of
"hazardous substance," "solid waste," "medical waste," "special waste,"
"hazardous waste," "extremely hazardous substance," "regulated substance,"
"hazardous materials," or "toxic substances," under any Environmental Law; (ii)
any material, waste or substance which is or contains: (A) petroleum, oil or a
fraction thereof, (B) explosives, or (C) radioactive materials (including
naturally occurring radioactive materials); and (iii) such other substances,
materials, or wastes that are or become classified or regulated as hazardous or
toxic under any applicable federal, state or local law or regulation. To the
extent that the laws or regulations of any applicable state or local
jurisdiction establish a meaning for any term defined herein through reference
to federal Environmental Laws which is broader than the meaning under such
federal Environmental Laws, such broader meaning shall apply.
"Person" means any individual, Entity or Governmental Authority.
"Remediation" means any action necessary to: (i) comply with and ensure
compliance with the Requirements of Environmental Laws and (ii) the taking of
all reasonably necessary precautions to protect against and/or respond to,
remove or remediate or monitor the release or threatened release of Materials of
Environmental Concern at, on, in, about, under, within or near the air, soil,
surface water, groundwater or soil vapor at any Business Facility of the Company
or any of its Subsidiaries or of any property affected by the business
operations, acts, omissions or Materials of Environmental Concern of the Company
or any of its Subsidiaries.
"Requirement(s) of Environmental Law(s)"means all requirements,
conditions, restrictions or stipulations of Environmental Laws imposed upon or
related to the Company or any of its Subsidiaries or the assets, Business
Facilities and/or the business of the Company or any of its Subsidiaries.
"Subsidiary" shall mean, when used with reference to an entity, any
other entity of which securities or other ownership interests having ordinary
voting power to elect a majority of the board of directors or other persons
performing similar functions, or a majority of the outstanding voting securities
of which, are owned directly or indirectly by such entity.
"Taxes" shall mean any and all taxes, charges, fees, levies or other
assessments, including, without limitation, income, gross receipts, excise, real
or personal property, sales, withholding, social security, occupation, use,
severance, environmental, license, net worth, payroll, employment, franchise,
3
transfer and recording taxes, fees and charges, imposed by the IRS or any other
taxing authority (whether domestic or foreign including, without limitation, any
state, county, local or foreign government or any subdivision or taxing agency
thereof (including a United States possession)), whether computed on a separate,
consolidated, unitary, combined or any other basis; and such term shall include
any interest whether paid or received, fines, penalties or additional amounts
attributable to, or imposed upon, or with respect to, any such taxes, charges,
fees, levies or other assessments.
"Tax Return" shall mean any report, return, document, declaration or
other information or filing required to be supplied to any taxing authority or
jurisdiction (foreign or domestic) with respect to Taxes, including, without
limitation, information returns and documents (i) with respect to or
accompanying payments of estimated Taxes or (ii) with respect to or accompanying
requests for the extension of time in which to file any such report, return,
document, declaration or other information, including any schedule or attachment
thereto and any amendment thereof.
4
