AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT dated as of the 30th day of September, 1996 by and among
Advanced Orthopedic Technologies, Inc., a Nevada corporation (the "Company"),
NovaCare Orthotics & Prosthetics, Inc., a Delaware corporation ("O&P"), and AOT
Acquisition Corp., a Nevada corporation and a wholly owned subsidiary of O&P
("Merger Subsidiary").
WHEREAS, the Company is engaged in the business of providing prosthetic and
orthotic services to the general public and the retail distribution and custom
fabrication of prosthetic and orthotic devices, primarily in the States of New
York, New Jersey, Virginia, West Virginia, New Mexico and California (such
activities being hereinafter referred to as the "Business"); and
WHEREAS, the Boards of Directors of O&P, Merger Subsidiary and the Company
have approved this Agreement and the Merger (as defined below).
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
SECTION I
THE MERGER
A. The Merger. (i) At the Effective Time (as defined in subsection (ii)
below), Merger Subsidiary shall be merged (the "Merger") with and into the
Company in accordance with the General Corporation Law of the State of Nevada
("Nevada Law"), whereupon the separate existence of Merger Subsidiary shall
cease, and the Company shall be the surviving corporation (the "Surviving
Corporation").
(ii) As soon as practicable after satisfaction or, to the extent permitted
hereunder, waiver of all conditions to the Merger, the Company and Merger
Subsidiary will file a certificate of merger with the Secretary of State of the
State of Nevada and make all other filings or recordings required by Nevada Law
in connection with the Merger. The closing of the Merger will take place at the
offices of ▇▇▇▇▇▇ & ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, or such
other place as the parties may agree. The Merger shall become effective at such
time as the certificate of merger is duly filed with the Secretary of
State of the State of Nevada or at such later time as is specified in the
certificate of merger (the "Effective Time").
(iii) From and after the Effective Time, the Surviving Corporation shall
possess all the assets, rights, privileges, powers and franchises and be subject
to all of the liabilities, restrictions, disabilities and duties of the Company
and Merger Subsidiary, all as provided under Nevada Law.
B. Conversion of Shares. At the Effective Time:
(i) each outstanding share of common stock, $.001 par value per share
(the "Shares"), of the Company held by the Company as treasury stock or
owned by O&P or any subsidiary of O&P immediately prior to the Effective
Time shall be cancelled, and no payment shall be made with respect thereto;
(ii) each share of common stock of Merger Subsidiary outstanding
immediately prior to the Effective Time shall be converted into and become
one share of common stock of the Surviving Corporation with the same
rights, powers and privileges as the shares so converted and shall
constitute the only outstanding shares of capital stock of the Surviving
Corporation; and
(iii) each Share outstanding immediately prior to the Effective Time
shall, except as otherwise provided in Section I(B)(i) or as provided in
Section I(E) with respect to shares as to which dissenter's rights have
been exercised, be converted into the right to receive an amount in cash
without interest thereon equal to (1) $14,080,000 less the sum of (x) the
Merger Expenses (as hereinafter defined) and (y) the amounts payable with
respect to the Company Warrants and the Company Options (each as
hereinafter defined) pursuant to Section I(D) hereof divided by (2) the
number of Shares outstanding immediately prior to the Effective Time (the
"Cash Consideration").
C. Surrender and Payment.
(i) Prior to the Effective Time, O&P shall appoint an agent reasonably
acceptable to the Company (the "Exchange Agent"), which shall enter into an
agreement with O&P and the Company reasonably acceptable to O&P and the
Company, for the purpose of exchanging certificates representing Shares for
the Cash Consideration.
(ii) Simultaneously with the execution hereof, O&P shall deposit with
▇▇▇▇▇▇ & ▇▇▇▇▇▇, as escrow agent (the
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"Escrow Agreement"), cash in an amount equal to $14,080,000 (the "Merger
Consideration Fund") for (A) the benefit of the holders of the Shares, the
Company Warrants and the Company Options for exchange in accordance with
this Section I(C), through the Exchange Agent, and (B) the payment of the
Merger Expenses (as hereinafter defined). For purposes hereof, "Merger
Expenses" shall include (A) expenses incurred by the Company in connection
with the Merger plus (b) the amount, if any, by which the aggregate amount
owing under (1) the Company's loan with State Bank of Long Island ("Bank
Debt"), (2) notes of the Company issued in connection with acquisitions by
the Company and (3) any net indebtedness of the Company owing to AHM (as
hereinafter defined) for borrowed funds, exceeds $4,000,000.
(iii) At the Effective Time, the Escrow Agent shall, pursuant to
irrevocable instructions, (A) deliver a portion of the Merger Consideration
Fund to the Exchange Agent in an amount equal to (1) the Cash Consideration
times the number of Shares to be exchanged pursuant to Section I(B) plus
(2) the amount to be paid to the holders of Company Warrants and Company
Options in accordance with Section I(D) and (B) pay the Merger Expenses, as
certified in a list delivered by the Company to the Escrow Agent, out of
the Merger Consideration Fund. The Merger Consideration Fund shall not be
used for any other purposes.
(iv) Within ten (10) business days after the Effective Time, O&P will
send, or will cause the Exchange Agent to send, to each holder of Shares at
the Effective Time a letter of transmittal for use in such exchange (which
shall specify that the delivery shall be effected, and risk of loss and
title shall pass, only upon proper delivery of the certificates
representing Shares to the Exchange Agent).
(v) Each holder of Shares that have been converted into a right to
receive cash, upon surrender to the Exchange Agent of a certificate or
certificates representing such Shares, together with a properly completed
letter of transmittal covering such Shares, will be entitled to receive in
exchange therefor cash which such holder has the right to receive pursuant
to Section I(B) (which cash shall be paid by check sent to such holder
within ten (10) business days after such surrender), and the certificate or
certificates for Shares so surrendered shall be cancelled. Until so
surrendered, each such certificate shall, after the Effective Time,
represent for all purposes, only the right to receive upon such surrender
the Cash Consideration as contemplated by this Section I(C).
(vi) After the Effective Time, there shall be no further registration
of transfers of Shares. If, after the
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Effective Time, certificates representing Shares are presented to the
Surviving Corporation, they shall be cancelled and exchanged as provided
for, and in accordance with the procedures set forth, in this Section I.
(vii) The Merger Consideration Fund shall be invested by (A) the
Escrow Agent prior to the Effective Time and (B) the Exchange Agent after
the Effective Time, in each case, as directed by O&P in consultation with
the Surviving Corporation (so long as such directions do not impair the
rights of the holders of Shares) in direct obligations of the United States
of America, obligations for which the full faith and credit of the United
States of America is pledged to provide for the payment of principal and
interest, commercial paper rated of the highest quality by ▇▇▇▇▇'▇
Investors Service Inc. or Standard & Poor's Corporation or certificates of
deposit issued by a commercial bank having combined capital, surplus and
undivided profits aggregating at least $500,000,000 (provided that no such
investment made prior to the thirtieth day after the Effective Time shall
mature more than seven days after such investment is made), and any net
earnings with respect thereto shall be paid to the Surviving Corporation as
and when requested by the Surviving Corporation.
(viii) Any portion of the Merger Consideration Fund made available to
the Exchange Agent pursuant to Section I(C)(iii) that remains unclaimed by
the holders of Shares, Company Warrants or Company Options six months after
the Effective Time shall be returned to O&P, upon demand, and any such
holder who has not exchanged his Shares, Company Warrants or Company
Options in accordance with this Section I(C) prior to that time shall
thereafter look only to O&P to exchange such Shares, Company Warrants or
Company Options. Notwithstanding the foregoing, O&P shall not be liable to
any holder of Shares, Company Warrants or Company Options for any amount
paid to a public official pursuant to applicable abandoned property laws.
Any amounts remaining unclaimed by holders of Shares, Company Warrants or
Company Options two years after the Effective Time (or such earlier date
immediately prior to such time as such amounts would otherwise escheat to
or become property of any governmental entity) shall, to the extent
permitted by applicable law, become the property of O&P free and clear of
any claims or interest of any Person (as hereinafter defined) previously
entitled thereto. For purposes of this Agreement, "Person" means an
individual, a corporation, a partnership, an association, a trust or any
other entity or organization, including a government or political
subdivision or any agency or instrumentality thereof.
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(ix) The Surviving Corporation shall be entitled to deduct and
withhold from the amounts payable pursuant to this Agreement to any holder
of Shares, Company Warrants or Company Options such amounts as the
Surviving Corporation is required to deduct and withhold with respect to
the making of such payment under the Internal Revenue Code of 1986, as
amended (the "Code"), or any provisions of state, local or foreign tax law.
To the extent that amounts are so withheld, such withheld amounts shall be
treated for all purposes of this Agreement as having been paid to the
holder of such Shares, Company Warrants or Company Options in respect of
which such deduction and withholding was made by the Surviving Corporation.
(x) Any portion of the Merger Consideration Fund made available to the
Exchange Agent pursuant to Section I(C)(iii) to be paid with respect to
Shares for which dissenter's rights have been perfected shall be returned
to O&P, upon demand.
D. Stock Options and Warrants.
(i) At the Effective Time, each outstanding warrant to purchase Shares
(a "Company Warrant"), which by its terms so provides, shall be cancelled
and each Person holding such Company Warrant shall receive in consideration
thereof cash in an amount (the "Warrant Consideration") equal to (x) the
difference between the Cash Consideration and the exercise price per share
of such Company Warrant multiplied by (y) the number of Shares covered by
such Company Warrant; and
(ii) At the Effective Time, each outstanding option to purchase Shares
(a "Company Option"), whether or not exercisable, and whether or not
vested, shall be cancelled and each Person holding a Company Option shall
receive in consideration thereof cash in an amount equal to (x) the
difference between the Cash Consideration and the option price per share of
such Company Option multiplied by (y) the number of Shares covered by such
Company Option.
E. Dissenting Shares. Notwithstanding Section I(B), Shares outstanding
immediately prior to the Effective Time and held by a holder who has not voted
in favor of the Merger or consented thereto in writing and who has demanded
appraisal for such Shares in accordance with Nevada Law shall not be converted
into a right to receive the Cash Consideration, unless such holder fails to
perfect or withdraws or otherwise loses his right to appraisal. If after the
Effective Time such holder fails to perfect or withdraws or loses his right to
appraisal, such Shares shall be treated
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as if they had been converted as of the Effective Time into a right to receive
the Cash Consideration. The Company shall give O&P prompt notice of any demands
received by the Company for appraisal of Shares, and O&P shall have the right to
participate in all negotiations and proceedings with respect to such demands.
The Company shall not, except with the prior written consent of O&P, make any
payment with respect to, or settle or offer to settle, any such demands. O&P
shall be responsible for any and all payments required to be made with respect
to Shares for which the holder thereof has perfected his dissenter's rights, as
well as the costs and expenses of all proceedings relating to the adjudication
and/or settlement thereof.
SECTION II
THE SURVIVING CORPORATION
A. Certificate of Incorporation. The articles of incorporation of Merger
Subsidiary in effect at the Effective Time shall be the certificate of
incorporation of the Surviving Corporation until amended in accordance with
applicable law.
B. By-laws. The by-laws of Merger Subsidiary in effect at the Effective
Time shall be the by-laws of the Surviving Corporation until amended in
accordance with applicable law.
C. Directors and Officers. From and after the Effective Time, until
successors are duly elected or appointed and qualified in accordance with
applicable law, (i) the directors of Merger Subsidiary at the Effective Time
shall be the directors of the Surviving Corporation, and (ii) the officers of
the Company at the Effective Time shall be the officers of the Surviving
Corporation.
SECTION III
REPRESENTATIONS, WARRANTIES, COVENANTS
AND AGREEMENTS OF THE COMPANY
The Company hereby represents and warrants to, and covenants and agrees
with, O&P, as of the date hereof and as of the Effective Time, that, except as
disclosed on the Company Disclosure Schedule delivered by the Company to O&P
simultaneously with the execution and delivery hereof (the "Company Disclosure
Schedule") and subject to the approval of the Merger by the stockholders of the
Company prior to the Effective Time:
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A. Organization and Qualification. The Company is duly organized, validly
existing and in good standing under the laws of the State of Nevada and has full
corporate power and authority to own its properties and to conduct the
businesses in which it is now engaged. The Company is in good standing in each
other jurisdiction wherein the failure so to qualify would have a material
adverse effect on the financial condition, business, assets or results of
operations of the Company and the Subsidiaries (as hereinafter defined), taken
as a whole (a "Company Material Adverse Effect"). Except for the Subsidiaries,
the Company has no subsidiaries, owns no capital stock or other proprietary
interest, directly or indirectly, in any other corporation, association, trust,
partnership, joint venture or other entity and has no agreement with any person,
firm or corporation to acquire any such capital stock or other proprietary
interest. The Company has full power, authority and legal right, and all
necessary approvals, permits, licenses and authorizations to own its properties
and to conduct the Business and to enter into and consummate the transactions
contemplated under this Agreement. The copies of the articles of incorporation
and by-laws of the Company and each of the Subsidiaries which have been
delivered to O&P are complete and correct.
B. Authority. The execution and delivery of this Agreement by the Company,
the performance by the Company of its covenants and agreements hereunder and the
consummation by the Company of the transactions contemplated hereby have been
duly authorized by all necessary corporate action. This Agreement constitutes a
valid and legally binding obligation of the Company, enforceable against the
Company in accordance with its terms.
C. No Legal Bar; Conflicts. Neither the execution and delivery of this
Agreement, nor the consummation of the transactions contemplated hereby,
violates any provision of the articles of incorporation or by-laws of the
Company or, assuming (i) the filing of a certificate of merger in accordance
with Nevada Law and (ii) compliance with applicable requirements of the
Securities Exchange Act of 1934 and the rules and regulations promulgated
thereunder (the "Exchange Act"), any statute, ordinance, regulation, order,
judgment or decree of any court or governmental agency or board, or conflicts
with or will result in any breach of any of the terms of or constitute a default
under or result in the termination of or the creation of any lien pursuant to
the terms of any contract or agreement to which the Company is a party or by
which the Company or any of the assets of the Company is bound, except for any
conflict, breach, default, termination or lien which would not have a Company
Material Adverse Effect. Other than (i) the filing of a certificate of merger in
accordance with Nevada Law, (ii) compliance with
7
applicable requirements of the Exchange Act and (iii) approval of the Merger by
the Company's stockholders, no consents, approvals or authorizations of, or
filings with, any governmental authority or any other person or entity are
required in connection with the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, except for required
consents, if any, to assignment of permits, certificates, contracts, leases and
other agreements as set forth in the Company Disclosure Schedule.
D. Capitalization. The authorized capital stock of the Company consists of
(i) 75,000,000 Shares and (ii) 14,955,000 shares of preferred stock, $.001 par
value per share. As of September 30, 1996, there were outstanding (w) 4,774,233
Shares, (w) Company Options to purchase an aggregate of 219,534 Shares, (x)
Company Warrants to purchase an aggregate of 665,334 Shares and (y) obligations
(a "Company Share Obligation") to issue, subject to certain conditions, up to
224,804 Shares (assuming for purposes of this representation, a Company stock
price of approximately $3.00 and achievement of 100% of earnings targets) in
connection with certain acquisitions made by the Company. All outstanding shares
of capital stock of the Company have been duly authorized and validly issued and
are fully paid and nonassessable and free of preemptive rights. Except as set
forth in this Section III(D) and except for changes since September 30, 1996
resulting from the exercise of Company Options, Company Warrants or other
obligations to issue Shares referred to above outstanding on such date, there
are outstanding (1) no shares of capital stock or other voting securities of the
Company, (2) no securities of the Company convertible into or exchangeable for
shares of capital stock or voting securities of the Company, and (3) no options,
warrants or other rights to acquire from the Company, and no obligation of the
Company to issue, any capital stock, voting securities or securities convertible
into or exchangeable for capital stock or voting securities of the Company (the
items in clauses (1), (2) and (3) being referred to collectively as the "Company
Securities"). There are no outstanding obligations of the Company or any of its
Subsidiaries to repurchase, redeem or otherwise acquire any Company Securities.
E. Subsidiaries. (i) Each Subsidiary of the Company is a corporation duly
incorporated, validly existing and, at the Effective Time, each Subsidiary will
be in good standing under the laws of its jurisdiction of incorporation. Each
Subsidiary has all corporate power and all material governmental licenses,
permits, authorizations, consents and approvals required to carry on its
business as now conducted and is duly qualified to do business as a foreign
corporation
8
and, at the Effective Time, each subsidiary will be in good standing in each
jurisdiction where the character of the property owned or leased by it or the
nature of its activities makes such qualification necessary, except where
failure to be so qualified would not have or reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect. For
purposes of this Agreement, "Subsidiary" of the Company means any corporation or
other entity of which all of the outstanding securities or other ownership
interests are owned directly or indirectly by the Company. Unless otherwise
noted or as the context shall otherwise require, references herein to the
Company shall include the Company and each of the Subsidiaries.
(ii) All of the outstanding capital stock of each Subsidiary of the Company
is owned by the Company, directly or indirectly, free and clear of any lien,
encumbrance, security interest or claim whatsoever. The Company Disclosure
Schedule sets forth, for each Subsidiary, the outstanding capital stock,
jurisdiction of incorporation and all jurisdictions in which it is qualified to
do business as a foreign corporation. There are no outstanding (a) securities of
the Company or any of its Subsidiaries convertible into or exchangeable for
shares of capital stock or other voting securities or ownership interests in any
Subsidiary of the Company, or (b) options or other rights to acquire from the
Company or any of its Subsidiaries, and no other obligation of the Company or
any of its Subsidiaries to issue, any capital stock, voting securities or other
ownership interests in, or any securities convertible into or exchangeable for
any capital stock, voting securities or ownership interests in, any Subsidiary
of the Company (the items in clauses (a) and (b) being referred to collectively
as the "Company Subsidiary Securities"). There are no outstanding obligations of
the Company or any of its Subsidiaries to repurchase, redeem or otherwise
acquire any outstanding Company Subsidiary Securities.
F. SEC Filings. (i) The Company has delivered to O&P (a) the Company's
annual report on Form 10-KSB for the fiscal year ended December 31, 1995 (the
"Company 10-KSB"), (b) its quarterly reports on Form 10-QSB for its fiscal
quarters ended March 31, 1996 and June 30, 1996, (c) its current report on Form
8-K dated January 6, 1996, (d) its proxy or information statements relating to
meetings of, or actions taken without a meeting by, the stockholders of the
Company held since December 31, 1995, and (e) all of its other reports,
statements, schedules and registration statements filed with the Securities and
Exchange Commission (the "SEC") since December 31, 1995, and all materials
incorporated therein by reference (the filings referred to in clauses (a)
through (e) above and delivered to O&P prior to the date
9
hereof being hereinafter referred to as the "Company SEC Filings").
(ii) As of its filing date, each such report or statement filed pursuant to
the Exchange Act complied as to form in all material respects with the
requirements of the Exchange Act and did not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements made therein, in the light of the circumstances under which they were
made, not misleading.
(iii) Each such registration statement and any amendment thereto filed
pursuant to the Securities Act of 1933 and the rules and regulations promulgated
thereunder (the "Securities Act"), as of the date such statement or amendment
became effective, complied as to form in all material respects with the
Securities Act and did not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading.
G. Financial Statements. The audited consolidated financial statements and
unaudited consolidated interim financial statements of the Company and its
consolidated Subsidiaries included in the Company 10-KSB and the quarterly
reports on Form 10-QSB referred to in Section III(F) (collectively, the
"Financial Statements") fairly present, in conformity with generally accepted
accounting principles applied on a consistent basis (except as may be indicated
in the notes thereto), the consolidated financial position of the Company and
its consolidated Subsidiaries as of the dates thereof and their consolidated
results of operations and cash flows for the periods then ended (subject, in the
case of any unaudited interim financial statements, to normal year-end
adjustments, none of which, individually or in the aggregate, would have a
Company Material Adverse Effect).
H. Absence of Certain Changes. Except as contemplated hereby or as
described in any Company SEC Filing, subsequent to June 30, 1996, there has not
been any (i) material adverse or prospective material adverse change in the
condition of the Company, financial or otherwise, or in the results of the
operations of the Company; (ii) material damage or destruction (whether or not
insured) affecting the properties or business operations of the Company; (iii)
labor dispute or threatened labor dispute involving the employees of the Company
or notice that any groups of employees or executive employees of the Company
intend to take leaves of absence, with or without pay; (iv) actual or, to the
best knowledge of the Company, threatened disputes pertaining to the Business
with any major accounts or referral sources of the Company, or actual or, to the
best knowledge of the
10
Company, threatened loss of all or substantially all the business from any of
the major accounts or referral sources of the Company; (v) changes in the
methods or procedures for billing or collection of customer accounts or
recording of customer accounts receivable or reserves for doubtful accounts with
respect to the Company; or (vi) other event or condition of any character, known
to the Company or which in the exercise of reasonable diligence should be known
to the Company, not disclosed in this Agreement pertaining to and materially
adversely affecting the Company, the Business or the assets of the Company.
Notwithstanding the representation in subparagraph (iv) above, in the ordinary
course of the Company's business, there are customer complaints, adjustments,
returns, refunds, replacements, maintenance and notifications thereof regarding
customers, patients, accounts and referral sources, which do not, individually
or in the aggregate, have a Company Material Adverse Effect; the existence of
such claims does not constitute a breach of the representations contained in
this Section III(H). No representation or warranty is made in this Agreement as
to the effect or change on the Company, its Business or assets of general
economic trends, or conditions or trends in the prosthetic and orthotic
industry, or the health care industry in general, or as to the impact on the
Company or such industries of federal and state legislative, budgetary and
regulatory changes proposed or enacted which affect the methods of delivery of
health care services, health care insurance, pricing and reimbursement of health
care services, or as to the overall restructuring of the health care system and
the Medicare and Medicaid programs.
I. Liabilities Incurred. Subsequent to June 30, 1996, the Company has not
(i) incurred any bank indebtedness, entered into any leases, loan agreements, or
contracts, obligations or arrangements of any kind, including, without
limitation, for the payment of money or property to any person except for (x)
contracts, obligations or arrangements entered into in the ordinary course of
business consistent with past practices which are not material to the operation
of the Business or (y) contracts and agreements specifically contemplated or
required by the terms and conditions of this Agreement, or (ii) permitted any
liens or encumbrances to attach to any of the assets of the Company.
J. Real Property Owned or Leased. A list and description of all real
property owned by or leased to or by the Company or in which the Company has any
interest is set forth in the Company Disclosure Schedule. All such leased real
property is held subject to written leases or other agreements which are valid
and effective in accordance with their respective terms, and, to the best
knowledge of the Company, there are no existing defaults or events of default,
11
or events which with notice or lapse of time or both would constitute defaults,
thereunder on the part of the Company, except for such defaults, if any, as are
not material in character, amount or extent and do not, severally or in the
aggregate, materially detract from the value or interfere with the present use
of the property subject to such lease or affect the validity or enforceability
of such lease or otherwise materially impair the Company or the operations of
the Business. The Company has no knowledge of any material default or claimed or
purported or alleged material default or state of facts which with notice or
lapse of time or both would constitute a material default on the part of any
other party in the performance of any obligation to be performed or paid by such
other party under any lease referred to in the Company Disclosure Schedule. The
Company has not received any written or oral notice to the effect that any lease
will not be renewed at the termination of the term thereof or that any such
lease will be renewed only at a substantially higher rent; provided, however,
that no representation, warranty or assurance is made that any lease will
actually be renewed by the landlord thereof.
K. Title to Assets; Condition of Property. The Company has good and valid
title to the assets of the Company, including, without limitation, the
properties and assets reflected in the Financial Statements (except for assets
leased under leases set forth in the Company Disclosure Schedule, inventory and
other assets sold or retired and accounts receivable collected upon, since June
30, 1996 in the ordinary course of business consistent with past practices). The
Company leases or owns all properties and assets used in the operations of the
Business as currently conducted other than inventory and supplies which need to
be purchased and replenished in the ordinary course of business. All such
properties and assets are in all material respects in good condition and repair,
ordinary wear and tear excepted, consistent with their respective ages, and have
been maintained and serviced in accordance with the normal practices of the
Company and as necessary in the normal course of business. At the Effective
Time, none of the assets of the Company will be subject to any liens, charges,
encumbrances or security interests except for liens and encumbrances and
security interests not related to indebtedness, which individually and in the
aggregate, do not materially adversely affect the conduct or operation of the
Company's Business; liens for taxes not yet due and payable or which are being
contested in good faith; and liens of mechanics, materialmen, warehouseman,
carriers, landlords and other like liens securing obligations incurred in the
ordinary course of business that are not yet due and payable or which are being
contested in good faith. None of the assets of the Company (or uses to which
they are put) fails to conform with any
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applicable agreement, law, ordinance or regulation in a manner which is likely
to be material to the operations of the Business. The Company owns all the
properties and assets which have been located at or on any of the leased
premises of the Company at any time since June 30, 1996.
L. Taxes. The Company and each Subsidiary has filed or caused to be filed
on a timely basis all federal, state, local, foreign and other tax returns,
reports and declarations (collectively, "Tax Returns") required to be filed by
it. All Tax Returns filed by or on behalf of the Company and each Subsidiary are
true, complete and correct in all material respects. The Company and each
Subsidiary has paid all income, estimated, excise, franchise, gross receipts,
capital stock, profits, stamp, occupation, sales, use, transfer, value added,
property (whether real, personal or mixed), employment, unemployment,
disability, withholding, social security, workers' compensation and other taxes,
and interest, penalties, fines, costs and assessments (collectively, "Taxes"),
due and payable with respect to the periods covered by such Tax Returns (whether
or not reflected thereon). There are no Tax liens on any of the properties or
assets, real, personal or mixed, tangible or intangible, of the Company or any
of the Subsidiaries except for liens for Taxes not yet due and payable or being
contested in good faith. The accrual for Taxes reflected in the Financial
Statements accurately reflects the total amount of all unpaid Taxes, whether or
not disputed and whether or not presently due and payable, of the Company and
each Subsidiary as of the close of the period covered by the Financial
Statements, and the amount of the Company's and each Subsidiary's unpaid Taxes
on June 30, 1996 does not exceed the accrual for Taxes reflected in the
Financial Statements for the period ended June 30, 1996, subject to year end
adjustments. Since June 30, 1996, neither the Company nor any of the
Subsidiaries has incurred any Tax liability other than in the ordinary course of
business. No deficiency in Taxes for any period has been asserted by any taxing
authority which remains unpaid at the date hereof (the results of any settlement
being set forth in the Company Disclosure Schedule), no written inquiries or
notices have been received by the Company or any of the Subsidiaries from any
taxing authority with respect to possible claims for Taxes, and neither the
Company nor any of the Subsidiaries has any reason to believe that such an
inquiry or notice is pending or threatened, and, to the best knowledge of the
Company and each of the Subsidiaries, there is no basis for any additional
claims or assessments for Taxes. Neither the Company nor any of the Subsidiaries
has agreed to the extension of the statute of limitations with respect to any
Tax Return or Tax period. The Company and each Subsidiary has delivered to O&P
copies of the federal and state income Tax Returns filed by the Company and each
13
Subsidiary for the past three years and for all other past periods as to which
the appropriate statute of limitations has not lapsed.
M. Permits; Compliance with Applicable Law.
(i) General. The Company is not in default under any, and has complied with
all, mandatory statutes, ordinances, regulations and laws (including, but not
limited to, all federal and state fraud and abuse, "anti-kickback" and
"self-referral" laws), orders, judgments and decrees of any court or
governmental entity or agency, relating to the Business or any of the assets of
the Company as to which a default or failure to comply might result in a Company
Material Adverse Effect. The Company has no knowledge of any basis for assertion
of any violation of the foregoing or for any claim for compensation or damages
or otherwise arising out of any violation of the foregoing. The Company has not
received any notification of any asserted present or past failure to comply with
any of the foregoing which has not been satisfactorily responded to in the time
period required thereunder.
(ii) Permits; Intellectual Property. Set forth in the Company Disclosure
Schedule is a complete and accurate list of all permits, licenses, approvals,
franchises, patents, registered and common law trademarks, service marks,
tradenames, copyrights (and applications for each of the foregoing), notices and
authorizations issued by governmental entities or other regulatory authorities,
federal, state or local (collectively the "Permits"), held by the Company in
connection with the Business. To the best knowledge of the Company, the Permits
set forth in the Company Disclosure Schedule are all the Permits required for
the conduct of the Business. All the Permits set forth in the Company Disclosure
Schedule are in full force and effect, and the Company has not engaged in any
activity which would cause or permit revocation or suspension of any such
Permit, and no action or proceeding looking to or contemplating the revocation
or suspension of any such Permit is pending or, to the best knowledge of the
Company, threatened. To the best knowledge of the Company, there are no existing
material defaults or events of default or event or state of facts which with
notice or lapse of time or both would constitute a material default by the
Company under any such Permit. The Company has no knowledge of any material
default or claimed or purported or alleged material default or state of facts
which with notice or lapse of time or both would constitute a material default
on the part of any other party in the performance of any obligation to be
performed or paid by any other party under any Permits set forth in the Company
Disclosure Schedule. To the best knowledge of the Company, the use by the
Company of any
14
proprietary rights relating to any Permit does not involve any claimed
infringement of such Permit or rights.
(iii) Environmental. (a) To the best knowledge of the Company, the Company
has duly complied with, in all material respects, the provisions of all federal,
state and local environmental, health and safety laws, codes and ordinances and
all rules and regulations promulgated thereunder.
(b) The Company has not received any notice of violations of any federal,
state or local environmental, health or safety laws, codes or ordinances, and
any rules or regulations promulgated thereunder, which violations, individually
or in the aggregate, could result in a Company Material Adverse Effect.
(iv) Medicare, Medicaid and CHAMPUS. The Company has complied in all
material respects with all laws, rules and regulations of the Medicare,
Medicaid, CHAMPUS and other governmental healthcare programs, except for any
such failure to comply which would not have or reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect. All claims,
returns, invoices, cost reports and other forms made by the Company to Medicare,
Medicaid, CHAMPUS or any other governmental health or welfare related entity or
any other third party payor since January 1, 1992 are in all material respects
true, complete, correct and accurate. To the best knowledge of the Company, no
deficiency in any such claims, returns, cost reports and other filings,
including claims for over-payments or deficiencies for late filings, has been
asserted or threatened by any federal or state agency or instrumentality or
other provider or reimbursement entities relating to Medicare, Medicaid or
CHAMPUS claims or any other third party payor. The Company has not been subject
to any audit relating to fraudulent Medicare, Medicaid or CHAMPUS procedures or
practices. To the best knowledge of the Company, there is no basis for any claim
or request for recoupment or reimbursement from the Company by, or for
reimbursement by the Company of, any federal or state agency or instrumentality
or other provider reimbursement entities relating to Medicare, Medicaid or
CHAMPUS claims.
N. Inventories; Accounts Payable.
(i) The inventories of the Company are in all material respects
merchantable and fully usable in the ordinary course of business.
(ii) The accounts and notes payable and other accrued expenses reflected in
the Financial Statements, and
15
the accounts and notes payable and accrued expenses incurred by the Company
subsequent to June 30, 1996, are in all respects valid claims that arose in the
ordinary course of business. Since June 30, 1996, the accounts and notes payable
and other accrued expenses of the Company have been paid in a manner consistent
with past practice.
O. Contractual and Other Obligations. Set forth in the Company Disclosure
Schedule is a list of all (i) material contracts, agreements, licenses, leases,
arrangements (written or oral) and other documents to which the Company is a
party or by which the Company or any of the assets of the Company is bound
(including, in the case of loan agreements, a description of the amounts of any
outstanding borrowings thereunder and the collateral, if any, for such
borrowings) other than contracts or agreements under which the consideration to
be paid by or received by the Company is less than $25,000; (ii) obligations and
liabilities of the Company pursuant to uncompleted orders for the purchase of
materials, supplies, equipment and services for the requirements of the Business
with respect to which the remaining obligation of the Company is in excess of
$25,000; and (iii) material contingent obligations and liabilities of the
Company; all of the foregoing being hereinafter referred to as the "Contracts".
Neither the Company nor, to the best knowledge of the Company, any other party
is in material default in the performance of any covenant or condition under any
Contract and no claim of such a default has been made and, to the best knowledge
of the Company, no event has occurred which with the giving of notice or the
lapse of time would constitute a material default under any covenant or
condition under any Contract. The Company is not a party to any Contract which
would terminate or be violated by the consummation of the transactions
contemplated by this Agreement. Originals or true, correct and complete copies
of all written Contracts have been provided to O&P.
P. Compensation. Set forth in the Company Disclosure Schedule is a list of
all agreements between the Company and each person employed by or independently
contracting with the Company with regard to compensation, whether individually
or collectively, and set forth in the Company Disclosure Schedule is a list of
all employees or independent contractors of the Company entitled to receive
annual compensation in excess of $20,000 and their respective salaries. The
transactions contemplated by this Agreement will not result in any liability for
severance pay to any employee or independent contractor of the Company. Except
for the Company Options, the Company Warrants and the Contingent Payees (as
hereinafter defined), the Company has not informed any employee or independent
contractor providing services to the Company that such person will receive any
increase in
16
compensation or benefits or any ownership interest in the Company or the
Business.
Q. Employee Benefit Plans. Except as set forth in the Company Disclosure
Schedule, the Company does not maintain or sponsor, or contribute to, any
pension, profit-sharing, savings, bonus, incentive or deferred compensation,
severance pay, medical, life insurance, welfare or other employee benefit plan.
All pension, profit-sharing, savings, bonus, incentive or deferred compensation,
severance pay, medical, life insurance, welfare or other employee benefit plans
within the meaning of Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended (hereinafter referred to as "ERISA"), in which the
employees participate are hereinafter referred to as the "Benefit Plans". All
Benefit Plans comply in all material respects with all requirements of the
Department of Labor and the Internal Revenue Service, and with all other
applicable law, and the Company has not taken or failed to take any action with
respect to the Benefit Plans which might create any liability on the part of the
Company or O&P except for claims in the ordinary course for benefits with
respect to the Benefit Plans and any requirements of the Company to contribute
to a Benefit Plan as set forth in the terms and conditions of such Benefit Plan.
In addition:
(i) Each Benefit Plan, including the Advanced Orthopedic Technologies,
Inc. 401(k) Plan (the "Plan"), intended to qualify under Section 401(a) of
the Code has received a favorable determination letter from the Internal
Revenue Service as to its qualification;
(ii) The Company does not maintain, sponsor or contribute to, and has
never maintained, sponsored or contributed to, a "defined benefit plan"
(within the meaning of Section 3(35) of ERISA) or a "multiemployer plan"
(within the meaning of Section 3(37) of ERISA);
(iii) There are no contributions which are or hereafter will be
required to have been made to trusts in connection with any Benefit Plan
that would constitute a "defined contribution plan" (within the meaning of
Section 3(34) of ERISA);
(iv) Other than claims in the ordinary course for benefits with
respect to the Benefit Plans, there are no actions, suits or claims
(including claims for income Taxes, interest, penalties, fines or excise
Taxes with respect thereto) pending with respect to any Benefit Plan, or,
to the best knowledge of the Company, any circumstances which might give
rise to any such action, suit or claim (including claims for income Taxes,
17
interest, penalties, fines or excise Taxes with respect thereto); and
(v) The Company has no obligation to provide health or other welfare
benefits to former, retired or terminated employees, except as specifically
required under Section 4980B of the Code or Section 601 of ERISA. The
Company has complied with the notice and continuation requirements of
Section 4980B of the Code and Section 601 of ERISA and the regulations
thereunder.
In connection with the transactions contemplated by this Agreement, the
Company hereby agrees that it will (i) terminate the Plan as of a date prior to
the Effective Time, (ii) take any and all steps necessary to effectuate promptly
the termination of the Plan including but not limited to the amendment of the
Plan, if necessary, to comply with the Tax Reform Act of 1986 and the filing of
an Application for Determination Upon Termination for the Plan, and all required
forms with the Internal Revenue Service and Department of Labor, (iii) deliver
all notices required to be delivered to employees and to the trustees of the
Plan, (iv) continue to file any and all information reports, including annual
reports, required with respect to the Plan until the completion of the
termination of the Plan and (v) fully vest all employees in their account
balances in the Plan.
As soon as practicable following the receipt of a favorable determination
letter from the Internal Revenue Service with respect to the termination of the
Plan, the Company shall cause the trustees of the Plan to distribute the account
balances in the Plan of the employees who are participants in the Plan in
accordance with the terms of the plan documents and any and all applicable laws,
rules and regulations. The current trustees of the Plan shall remain as trustees
of the Plan through completion of the termination process.
R. Labor Relations. Since January 1, 1992, there have been no violations of
any federal, state or local statutes, laws, ordinances, rules, regulations,
orders or directives with respect to the employment of individuals by, or the
employment practices or work conditions of, the Company, or the terms and
conditions of employment, wages and hours which violations, individually or in
the aggregate, could result in a Company Material Adverse Effect. The Company is
not engaged in any unfair labor practice or other unlawful employment practice
and there are no charges of unfair labor practices or other employee-related
complaints pending or, to the best knowledge of the Company, threatened against
the Company before the National Labor Relations Board, the Equal Employment
Opportunity Commission, the Occupational
18
Safety and Health Review Commission, the Department of Labor or any other
federal, state, local or other governmental authority. There is no strike,
picketing, slowdown or work stoppage or organizational attempt pending,
threatened against (to the best knowledge of the Company) or involving the
Business. No issue with respect to union representation is pending or, to the
best knowledge of the Company, threatened with respect to the employees of the
Company. No union or collective bargaining unit or other labor organization has
ever been certified or recognized by the Company as the representative of any of
the employees of the Company.
S. Increases in Compensation or Benefits. Subsequent to June 30, 1996,
there have been no increases in the compensation payable or to become payable to
any of the employees of the Company and there have been no payments or
provisions for any awards, bonuses, loans, profit sharing, pension, retirement
or welfare plans or similar or other disbursements or arrangements for or on
behalf of such employees (or related parties thereof), in each case, other than
pursuant to currently existing plans or arrangements, if any, set forth in the
Company Disclosure Schedule. Except for bonuses that may be due to employees of
the Company for the current year as set forth in the Company Disclosure
Schedule, all bonuses heretofore granted to employees of the Company have been
paid in full to such employees. The vacation policy of the Company is set forth
in the Company Disclosure Schedule. No employee of the Company is entitled to
vacation time in excess of three weeks during the current calendar year and no
employee of the Company has any accrued vacation or sick time with respect to
any prior period.
T. Insurance. A list of each of the insurance policies maintained by the
Company is set forth in the Company Disclosure Schedule. Such insurance policies
are in full force and effect and all premiums due thereon prior to or at the
Effective Time have been, or prior to the Effective Time will be, paid. The
Company has complied with the provisions of such policies. Such insurance is of
comparable amounts and coverage as that which companies engaged in similar
businesses maintain in accordance with good business practices. There are no
notices of any pending or threatened termination or premium increases with
respect to any such policies. The Company has not had any material casualty loss
or occurrence which may give rise to any claim of any kind not covered by
insurance and the Company is not aware of any occurrence which may give rise to
any material claim of any kind not covered by insurance. No third party has
filed any claim against the Company for personal injury or property damage of a
kind for which liability insurance is generally available which is not fully
insured, subject only to the standard deductible. All
19
claims against the Company covered by insurance have been reported to the
insurance carrier on a timely basis.
U. Conduct of Business. The Company is not restricted from conducting the
Business in any location by agreement or court decree.
V. Allowances. The Company has no obligation outside of the ordinary course
of business or pursuant to the terms and conditions of managed care contracts to
make allowances to any customers with respect to the Business.
W. Use of Names. All names under which the Company currently conducts the
Business are listed in the Company Disclosure Schedule. To the best knowledge of
the Company, there are no other persons or businesses conducting businesses
similar to those of the Company in the States of New York, New Jersey, Virginia,
West Virginia, New Mexico and California having the right to use or using the
names set forth in the Company Disclosure Schedule or any variants of such
names; and no other person or business has ever attempted to restrain the
Company from using such names or any variant thereof. The Company and its
Subsidiaries utilize the corporate names "Advanced Orthopedic Technologies,
Inc." with modifiers identifying the state of incorporation of the Subsidiaries.
None of such names are registered trademarks, trade names, service marks or
service names under federal or state law. No representation or warranty is made
as to the use of such names outside the states set forth in this Section III(W).
Inasmuch as numerous organizations competitive with the Business utilize the
word "Orthopedic" in their corporate or business names, no representation or
warranty is made as to proprietary use of such word in any jurisdiction as part
of a corporate or business name nor as to the ability to obtain any registration
of any trademark, trade name, service ▇▇▇▇ or service name with respect to any
names utilized by the Company or its Subsidiaries. As set forth in the Company
Disclosure Schedule, in certain locations the Company or its Subsidiaries
utilize the business names formerly utilized by companies the Company has
acquired and other former names ("Seller Names"), the Company does not own any
registered trademark, trade name, service ▇▇▇▇, service name, nor does it
possess any business, trade name or fictitious name certificates for any of the
Seller Names and the Company makes no representation or warranty as to the
ability to obtain registration or certificates therefor.
X. Power of Attorney. The Company has not granted any power of attorney
(revocable or irrevocable) to any person, firm or corporation for any purpose
whatsoever.
20
Y. Certification. The Company is in compliance with applicable industry
standards requiring supervision of professional operations by prosthetic and
orthotic practitioners certified by the American Board for Certification in
Prosthetics and Orthotics. Neither the Company nor such practitioners are
currently required to hold any professional license issued by any state
authority to engage in the Business.
Z. Litigation; Disputes. Except as set forth in the Company Disclosure
Schedule, (i) there are no claims, disputes, actions, suits, investigations or
proceedings pending or, to the best knowledge of the Company, threatened against
or affecting the Company, the Business or any of the assets of the Company, (ii)
no such claim, dispute, action, suit, proceeding or investigation in excess of
$50,000 has been pending or threatened against or affecting the Company, the
Business or any of the assets of the Company during the five-year period
preceding the Effective Time and (iii) to the best knowledge of the Company,
there is no basis for any such claim, dispute, action, suit, investigation or
proceeding against or affecting the Company, the Business or any of the assets
of the Company. Notwithstanding the foregoing set forth above, in the ordinary
course of the Company's business, there are customer complaints, adjustments,
returns, refunds, replacements, maintenance and notifications thereof regarding
customers, patients, accounts and referral sources, which do not, individually
or in the aggregate, have a Company Material Adverse Effect; the existence of
such claims does not constitute a breach of the representations contained in
this Section III(Z). The Company has no knowledge of any default under any such
action, suit or proceeding set forth in the Company Disclosure Schedule. The
Company is not in default in respect of any judgment, order, writ, injunction or
decree of any court or of any federal, state, municipal or other government
department, commission, bureau, agency or instrumentality or any arbitrator.
AA. Location of Business and Assets. Set forth in the Company Disclosure
Schedule is each location (specifying state, county and city) where the Company
(i) has a place of business, (ii) owns or leases real property and (iii) owns or
leases any other property, including inventory, equipment and furniture.
AB. Computer Software. The Company has the right to use all computer
software, including all property rights constituting part of that computer
software, used in connection with the Company's business operations (the
"Computer Software"). A list of all written licenses pertaining to the Computer
Software is set forth in the Company Disclosure Schedule (the "Licenses"). The
Company has
21
no knowledge that any of the Licenses may not be valid or enforceable by the
Company or that the use of the Computer Software or any of the Licenses may
infringe upon or conflict with the rights of any third party. The Company has
not granted any licenses to use the Computer Software or any sublicenses with
respect to any of the Licenses.
AC. Vote Required. The affirmative vote of the holders of a majority of the
outstanding Shares is the only vote of the holders of any class or series of the
Company's capital stock necessary to approve this Agreement and the
transactions contemplated hereby.
AD. Finders' Fees. Except for the Company's agreement with ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇,
as amended to date, there is no investment banker, broker, finder or other
intermediary which has been retained by or is authorized to act on behalf of the
Company or any Subsidiary who might be entitled to any fee or commission in
connection with the transactions contemplated by this Agreement.
AE. Contingent Payments. The Company has entered into written agreements
with each Person (a "Contingent Payee") who is entitled to receive Shares as
contingent payments from the Company pursuant to a definitive agreement for such
Person to receive, if and at the time such contingent payment is due, certain
consideration in lieu of Shares. In addition, in circumstances where such
Contingent Payee is entitled to such contingent payment as an additional payment
in connection with an acquisition, such written agreement shall provide that the
contingent payment, if earned, is not contingent on such Contingent Payee being
employed by the Company. A list of all Contingent Payees is set forth in the
Company Disclosure Schedule.
AF. Disclosure. No representation or warranty made under any Section hereof
and none of the information set forth herein or in the Company Disclosure
Schedule contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements herein or therein not misleading.
No representations or warranties are made by any party hereto except as set
forth in this Agreement or in the Company Disclosure Schedule.
22
SECTION IV
REPRESENTATIONS, WARRANTIES, COVENANTS
AND AGREEMENTS OF O&P AND MERGER SUBSIDIARY
Each of O&P and Merger Subsidiary hereby represents and warrants to, and
covenants and agrees with, the Company, as of the date hereof and as of the
Effective Time, that:
A. Organization. Each of O&P and Merger Subsidiary is a corporation duly
organized, validly existing and in good standing under the laws of the state of
its incorporation and has full corporate power and authority to own its
properties and to conduct the businesses in which it is now engaged.
B. Authority. The execution and delivery of this Agreement by each of O&P
and Merger Subsidiary, the performance by each of O&P and Merger Subsidiary of
its respective covenants and agreements hereunder and the consummation by each
of O&P and Merger Subsidiary of the transactions contemplated hereby have been
duly authorized by all necessary corporate action, and this Agreement
constitutes a valid and legally binding obligation of O&P and Merger Subsidiary,
respectively, enforceable against each of them in accordance with its terms.
C. No Legal Bar; Conflicts. Neither the execution and delivery of this
Agreement, nor the consummation of the transactions contemplated hereby,
violates any provision of the certificate of incorporation or by-laws of either
O&P or Merger Subsidiary or any statute, ordinance, regulation, order, judgment
or decree of any court or governmental agency or board, or conflicts with or
will result in any breach of any of the terms of or will constitute a default
under or result in the termination of or the creation of any lien pursuant to
the terms of any contract or agreement to which either O&P or Merger Subsidiary
is a party or by which either O&P or Merger Subsidiary or any of their assets is
bound.
D. Ownership. O&P owns 100% of the issued and outstanding capital stock of
Merger Subsidiary. NovaCare, Inc., a Delaware corporation ("NovaCare"), owns
100% of the issued and outstanding capital stock of O&P.
23
SECTION V
COVENANTS OF THE COMPANY
The Company agrees that:
A. Conduct of the Company. Except as expressly contemplated by this
Agreement or as set forth in the Company Disclosure Schedule, from the date
hereof until the Effective Time, the Company and each Subsidiary shall conduct
their business in the ordinary course consistent with past practice and shall
use their best efforts to preserve intact their business organizations and
relationships with third parties and to keep available the services of their
present officers and employees. Except as otherwise approved in writing by O&P,
or as expressly contemplated by this Agreement, and without limiting the
generality of the foregoing, from the date hereof until the Effective Time:
(a) the Company will not, and will not permit any Subsidiary to, adopt
or propose any change in its articles of incorporation or by-laws;
(b) the Company will not, and will not permit any of its Subsidiaries
to, merge or consolidate with any other Person (other than another wholly
owned Subsidiary) or acquire a material amount of stock or assets of any
other Person;
(c) the Company will not, and will not permit any of its Subsidiaries
to, sell, lease, license or otherwise dispose of any material assets or
property except (i) pursuant to existing contracts or commitments, (ii) in
the ordinary course consistent with past practice or (iii) transfers
between the Company and/or its Subsidiaries;
(d) the Company will not declare or pay any dividends or make any
distributions on its Shares;
(e) the Company will not, and will not permit any of its Subsidiaries
to, (i) issue, deliver or sell, or authorize or propose the issuance,
delivery or sale of, any Company Securities or Company Subsidiary
Securities, other than the issuance of Shares either upon the exercise of
Company Options or Company Warrants or to fulfill obligations to issue
Shares in each case as described in Section I(D) and outstanding on the
date hereof, (ii) split, combine or reclassify any Company Securities or
Company Subsidiary Securities or (iii) except as required or permitted by
this Agreement,
24
repurchase, redeem or otherwise acquire any Company Securities or any
Company Subsidiary Securities;
(f) except as otherwise expressly permitted hereby, the Company will
not make any commitment or enter into any contract or agreement material to
the Company and its Subsidiaries taken as a whole except in the ordinary
course of business consistent with past practice;
(g) the Company will not, and will not permit any of its Subsidiaries
to, agree or commit to do any of the foregoing; and
(h) the Company will not, and will not permit any of its Subsidiaries
to, take or agree to commit to take any action that would make any
representation and warranty of the Company hereunder inaccurate in any
material respect at, or as of any time prior to, the Effective Time.
B. Access to Information. From the date hereof until the Effective Time,
the Company will give O&P, its counsel, financial advisors, auditors and other
authorized representatives full access to the offices, properties, books and
records of the Company and its Subsidiaries, will furnish to O&P, its counsel,
financial advisors, auditors and other authorized representatives such financial
and operating data and other information as such Persons may reasonably request
and will instruct the Company's employees, counsel and financial advisors to
cooperate with O&P in its investigation of the business of the Company and its
Subsidiaries; provided that no investigation pursuant to this Section V(B) shall
affect any representation or warranty given by the Company to O&P hereunder.
C. Confidentiality. Each of the Company, Merger Subsidiary and O&P shall be
bound by the terms of the Confidentiality Agreement dated as of August 14, 1996,
which agreement shall survive the execution and delivery of this Agreement.
D. Other Offers. From the date hereof until the termination hereof, the
Company and its Subsidiaries and the officers, directors, employees or other
agents of the Company and its Subsidiaries will not, directly or indirectly, (i)
take any action to solicit, initiate or encourage any Company Acquisition
Proposal (as defined below) or (ii) unless otherwise required in accordance with
the fiduciary duties of the Board of Directors under applicable law as advised
by counsel to the Company, engage in negotiations with, or disclose any
nonpublic information relating to the Company or any of its Subsidiaries or
afford access to the properties,
25
books or records of the Company or any of its Subsidiaries to, any Person that
may be considering making, or has made, a Company Acquisition Proposal. The
Company will promptly notify O&P after receipt of any Company Acquisition
Proposal or any indication that any Person is considering making a Company
Acquisition Proposal or any request for nonpublic information relating to the
Company or any of its Subsidiaries or for access to the properties, books or
records of the Company or any of its Subsidiaries by any Person that may be
considering making, or has made, a Company Acquisition Proposal. For purposes of
this Agreement, "Company Acquisition Proposal" means any offer or proposal for,
or any indication of interest in, a merger or other business combination
involving the Company or any of its Subsidiaries or the acquisition of any
equity interest in, or a substantial portion of the assets of, the Company or
any of its Subsidiaries, other than the transactions contemplated by this
Agreement.
E. Notices of Certain Events. The Company shall promptly notify O&P of:
(i) any notice or other communication from any Person alleging that
the consent of such Person (or another Person) is or may be required in
connection with the transactions contemplated by this Agreement;
(ii) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions
contemplated by this Agreement; and
(iii) any actions, suits, claims, investigations or proceedings
commenced or, to the best of its knowledge, threatened against, relating to
or involving or otherwise affecting the Company or any of its Subsidiaries
which, if pending on the date of this Agreement, would have been required
to have been disclosed pursuant to Section I(Z) or which relate to the
consummation of the transactions contemplated by this Agreement.
F. Certain Filings; Stockholders Meeting. The Company shall promptly
prepare and file with the SEC a Proxy Statement and cause a meeting of its
stockholders to be duly called and held as soon as reasonably practicable for
the purpose of voting on the approval and adoption of this Agreement and the
Merger. The Directors of the Company shall, unless otherwise required in
accordance with their fiduciary duties as advised by counsel, recommend approval
and adoption of this Agreement and the Merger by the Company's stockholders. In
connection with such meeting, the Company will, subject to the foregoing, use
its best efforts to obtain
26
the necessary approvals by its stockholders of this Agreement, the transactions
contemplated hereby and such other matters as are contemplated by the terms of
this Agreement or required by Nevada Law, and will otherwise comply with all
legal requirements applicable to such meeting.
SECTION VI
COVENANTS OF O&P
O&P agrees that it will take all action necessary to cause Merger
Subsidiary to perform its obligations under this Agreement and to consummate the
Merger on the terms and conditions set forth in this Agreement.
SECTION VII
COVENANTS OF O&P AND THE COMPANY
The parties hereto agree that:
A. Best Efforts. Subject to the terms and conditions of this Agreement,
each party will use its best efforts to take, or cause to be taken, all actions
and to do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate the transactions contemplated by
this Agreement.
B. Public Announcements. O&P and the Company will consult with each other
before issuing any press release or making any public statement with respect to
this Agreement and the transactions contemplated hereby and, except as may be
required by applicable law or any listing agreement with any national securities
exchange or interdealer quotation system, will not issue any such press release
or make any such public statement without obtaining the prior written approval
of the other party.
C. Further Assurances. At and after the Effective Time, the officers and
directors of the Surviving Corporation will be authorized to execute and
deliver, in the name and on behalf of the Company or Merger Subsidiary, any
deeds, bills of sale, assignments or assurances and to take and do, in the name
and on behalf of the Company or Merger Subsidiary, any other actions and things
to vest, perfect or confirm of record or otherwise in the Surviving Corporation
any and all right, title and interest in, to and under any of the rights,
properties or assets of the Company acquired or to be acquired by the Surviving
Corporation as a result of, or in connection with, the Merger.
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SECTION VIII
CONDITIONS TO THE MERGER
A. Conditions to the Obligations of Each Party. The obligations of the
Company, O&P and Merger Subsidiary to consummate the Merger are subject to the
satisfaction of the following conditions:
(i) this Agreement shall have been adopted by the requisite vote of
the stockholders of the Company in accordance with Nevada Law;
(ii) no provision of any applicable domestic law or regulation and no
judgment, injunction, order or decree of a court of competent jurisdiction
shall restrain or prohibit the consummation of the Merger;
(iii) O&P and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ ("AHM") shall have entered into a
Non-competition Agreement on mutually agreed upon terms; and
(iv) O&P and AHM shall have terminated AHM's Employment Agreement
dated April 30, 1992 and entered into an Employment Agreement on mutually
agreed upon terms.
B. Conditions to the Obligations of O&P and Merger Subsidiary. The
obligations of O&P and Merger Subsidiary to consummate the Merger are subject to
the satisfaction of the following further conditions:
(i) Subject to the next succeeding sentence, the representations and
warranties made by the Company herein shall be correct as of the Effective
Time in all respects with the same force and effect as though such
representations and warranties had been made as of the Effective Time, and,
at the Effective Time, the Company shall deliver to O&P and Merger
Subsidiary a certificate dated the date of the Effective Time to such
effect; and all the terms, covenants and conditions of this Agreement to be
complied with and performed by the Company on or before the Effective Time
shall have been duly complied with and performed in all material respects,
and, at the Effective Time, the Company shall deliver to O&P and Merger
Subsidiary a certificate dated as of the date of the Effective Time to such
effect. The Company shall be entitled to notify O&P, from time to time, on
or before the date which is five (5) business days prior to the Effective
Time, which notification (each, an "Update Notice") may (i) update, modify
or supplement the Company
28
Disclosure Schedule and, upon delivery of such Update Notice, the Company
Disclosure Schedule, for all purposes of this Agreement, shall be deemed to
be amended to be consistent with each such Update Notice. In the event that
O&P receives an Update Notice which sets forth the occurrence or existence
of events or circumstances which have had a with written notice and an
opportunity to modify the Update Notice or to cure any matter set forth in
the Update Notice which has had such effect and the Company shall not have
modified the Update Notice or cured such matter so as to avoid such effect
on or prior to the date which is thirty (30) days after the Company has
received such written notice, but in no event later than December 31, 1996)
have no obligation to complete the transactions contemplated by this
Agreement; O&P's sole and exclusive remedy in such event shall be to
terminate this Agreement pursuant to Section IX(A)(vi);
(ii) Prior to the Effective Time, O&P shall have received evidence of
the consent of each Person holding (a) a Company Warrant or (b) a Company
Share Obligation to have such Company Warrant or Company Share Obligation,
as the case may be, cancelled on the terms and conditions set forth in this
Agreement;
(iii) O&P shall have received a copy of the resolutions of the Board
of Directors of the Company authorizing the Merger, which copy shall be
certified by an executive officer of the Company;
(iv) O&P shall have received an opinion of ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ LLP,
counsel for the Company, substantially to the effect set forth in Exhibit A
attached hereto;
(v) O&P and AHM shall have entered into an Indemnification Agreement
on mutually agreed upon terms;
(vi) O&P shall have received evidence, reasonably satisfactory to it
and its counsel, of the termination or transfer of the two key man life
insurance policies issued on the life of AHM and that the Company has no
further obligation to pay (or reimburse the payment of) any of the premiums
on such policies;
(vii) O&P, or a representative thereof, shall have received an
irrevocable proxy from each of AHM and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ ("NBM") to vote
their Shares in favor of the Merger at the special meeting of the
stockholders of the Company called to vote on the Merger;
29
(viii) O&P shall have received evidence, reasonably satisfactory to it
and its counsel, that the agreement to pay each of AHM and NBM a guarantee
fee in connection with the Bank Debt has been terminated; and
(ix) O&P shall have received evidence, reasonably satisfactory to it
and its counsel, that all patent license agreements between AHM and the
Company have been terminated.
C. Conditions to the Obligations of the Company. The obligations of the
Company to consummate the Merger are subject to the satisfaction of the
following further conditions:
(i) The representations and warranties made by O&P and Merger
Subsidiary herein shall be correct as of the Effective Time in all respects
with the same force and effect as though such representations and
warranties had been made as of the Effective Time, and, at the Effective
Time, O&P and Merger Subsidiary shall deliver to the Company a certificate
dated the date of the Effective Time to such effect. All the terms,
covenants and conditions of this Agreement to be complied with and
performed by O&P and Merger Subsidiary on or before the Effective Time
shall have been duly complied with and performed in all material respects,
and, at the Effective Time, O&P and Merger Subsidiary shall deliver to the
Company a certificate dated as of the date of the Effective Time to such
effect;
(ii) the Company shall have received a copy of the resolutions of the
Board of Directors of O&P, Merger Subsidiary and NovaCare authorizing the
Merger and the transactions contemplated thereby, which copy shall be
certified by an executive officer of O&P, Merger Subsidiary or NovaCare, as
the case may be;
(iii) the Company shall have received an opinion of ▇▇▇▇▇ ▇. ▇▇▇▇▇▇,
Esq., counsel for O&P and Merger Subsidiary, substantially to the effect
set forth in Exhibit B attached hereto; and
(iv) AHM and NBM shall have received evidence that each of them has
been released from their respective guarantees with respect to the
Company's repayment of the Bank Debt.
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SECTION IX
TERMINATION
A. Termination. This Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time (notwithstanding any approval
of this Agreement by the stockholders of the Company);
(i) by mutual written consent of the Company and O&P;
(ii) by either the Company or O&P, if the Merger has not been
consummated by December 31, 1996 (provided that the right to terminate this
Agreement under this clause shall not be available to any party whose
failure to fulfill any of its obligations under this Agreement has been the
cause of or resulted in the failure to consummate the Merger by such date);
(iii) by either the Company or O&P, if there shall be any applicable
domestic law, rule or regulation that makes consummation of the Merger
illegal or otherwise prohibited or if any judgment, injunction, order or
decree of a court of competent jurisdiction shall restrain or prohibit the
consummation of the Merger, and such judgment, injunction, order or decree
shall become final and nonappealable;
(iv) by either the Company or O&P, if the stockholder approval
referred to in Section VIII(A)(i) shall not have been obtained by reason of
the failure to obtain the requisite vote upon a vote at a duly held meeting
of stockholders or at any adjournment thereof;
(v) by either the Company or O&P (the "Terminating Party") if (x)
there has been a breach by the other party of any representation or
warranty contained in this Agreement which would have or would be
reasonably likely to have an material adverse effect on the business,
operations or properties of the Company or O&P, as the case may be, or (y)
there has been a material breach of any of the covenants or agreements set
forth in this Agreement on the part of the other party, which breach is not
curable or, if curable, is not cured within 30 days after written notice of
such breach is given by the Terminating Party to the other party; or
(vi) by O&P (A) if holders of a substantial number of the Shares
outstanding immediately prior to the Effective Time shall have complied
with all requirements for perfecting rights of dissenters as set forth in
31
Section 92A.380 of the Nevada Law with respect to such shares or (B)
pursuant to Section VIII(B)(i).
B. Effect of Termination. If this Agreement is terminated pursuant to
Section IX(A), this Agreement shall become void and of no effect with no
liability on the part of any party hereto, except that the parties shall be
liable for any willful breaches hereof.
SECTION X
MISCELLANEOUS
A. Notices. All notices, requests or instructions hereunder shall be in
writing and delivered personally, sent by telecopy or sent by registered or
certified mail, postage prepaid, as follows:
(1) If to the Company:
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: President
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ LLP
▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
(2) If to O&P:
c/o NovaCare, Inc.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: President
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
NovaCare, Inc.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: General Counsel
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
32
Any of the above addresses may be changed at any time by notice given as
provided above; provided, however, that any such notice of change of address
shall be effective only upon receipt. All notices, requests or instructions
given in accordance herewith shall be deemed received on the date of delivery,
if hand delivered or telecopied, and two business days after the date of
mailing, if mailed.
B. Survival of Representations. The representations, warranties and
agreements contained herein and in any certificate or other writing delivered
pursuant hereto shall not survive the Effective Time, except Article I.
C. Entire Agreement. This Agreement and the documents referred to herein
contain the entire agreement among the parties hereto with respect to the
transactions contemplated hereby, and, subject to Section X(I), no modification
hereof shall be effective unless in writing and signed by the party against
which it is sought to be enforced.
D. Expenses. Each of the parties hereto shall bear such party's own
expenses in connection with this Agreement and the transactions contemplated
hereby.; provided, however, that the expenses of the Company may be paid in
accordance with Section I(C)(iii).
E. Invalidity. Should any provision of this Agreement be held by a court of
competent jurisdiction to be enforceable only if modified, such holding shall
not affect the validity of the remainder of this Agreement, the balance of which
shall continue to be binding upon the parties hereto with any such modification
to become a part hereof and treated as though originally set forth in this
Agreement. The parties further agree that any such court is expressly authorized
to modify any such unenforceable provision of this Agreement in lieu of severing
such unenforceable provision from this Agreement in its entirety, whether by
rewriting the offending provision, deleting any or all of the offending
provision, adding additional language to this Agreement, or by making such other
modifications as it deems warranted to carry out the intent and agreement of the
parties as embodied herein to the maximum extent permitted by law. The parties
expressly agree that this Agreement as modified by the court shall be binding
upon and enforceable against each of them. In any event, should one or more of
the provisions of this Agreement be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provisions hereof, and if such provision or provisions are not
modified as provided above, this Agreement shall be construed as if such
invalid, illegal or unenforceable provisions had never been set forth herein.
33
F. Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the successors and assigns of the Company, Merger Subsidiary
and O&P, respectively.
G. Governing Law. The validity of this Agreement and of any of its terms or
provisions, as well as the rights and duties of the parties under this
Agreement, shall be construed pursuant to and in accordance with the laws of the
State of Nevada, without regard to conflict of laws principles.
H. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.
I. Amendments. Any provision of this Agreement may be amended or waived
prior to the Effective Time if, and only if, such amendment or waiver is in
writing and signed, in the case of an amendment, by the Company, O&P and Merger
Subsidiary or, in the case of a waiver, by the party against whom the waiver is
to be effective; provided that (i) any waiver or amendment shall be effective
against a party only if the Board of Directors of such party approves such
waiver or amendment and only such Board of Directors can take actions on behalf
of that party and (ii) after the adoption of this Agreement by the stockholders
of the Company, no such amendment or waiver shall, without the further approval
of such stockholders and each party's Board of Directors, alter or change (x)
the amount or kind of consideration to be received in exchange for any shares of
capital stock of the Company or (y) any of the terms or conditions of this
Agreement if such alteration or change would adversely affect the holders of any
shares of capital stock of the Company.
* * *
34
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto as of the date first above written.
ADVANCED ORTHOPEDIC TECHNOLOGIES, INC.
By:___________________________________
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: President
AOT ACQUISITION CORP.
By:___________________________________
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇.
Title: Vice President
NOVACARE ORTHOTICS & PROSTHETICS, INC.
By:___________________________________
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇.
Title: Vice President
35