Exhibit 10.6
AGREEMENT AND PLAN OF MERGER
by and among
PAINCARE HOLDINGS, INC.
as the "Buyer"
▇▇▇▇▇▇ ▇▇▇▇▇▇▇, M.D.
as the "Stockholder" and
PAIN AND REHABILITATION NETWORK, INC.
as the "Company"
Dated: December 1, 2002
TABLE OF CONTENTS
ARTICLE 1 DEFINITIONS.................................................................... 4
1.1 Defined Terms ............................................................... 4
1.2 Other Defined Terms ......................................................... 11
ARTICLE 2 PLAN OF MERGER ................................................................ 12
2.1 Organization of Mergeco ..................................................... 12
2.2 The Merger .................................................................. 12
2.3 Merger Conversion ........................................................... 13
2.4 Consideration ............................................................... 13
2.5 Articles of Incorporation, Bylaws, Registered Agent of the Surviving
Corporation ................................................................ 16
2.6 Directors and Officers of the Surviving Corporation ......................... 16
2.7 Registration Rights ......................................................... 16
2.8 Structuring Matters ......................................................... 16
ARTICLE 3 CLOSING ....................................................................... 18
3.1 Closing ..................................................................... 18
3.2 Deliveries at Closing ....................................................... 18
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER AND THE COMPANY ............. 19
4.1 Organization; Capitalization ................................................ 19
4.2 Authorization ............................................................... 20
4.3 Consents and Approvals ...................................................... 20
4.4 Title to Assets ............................................................. 20
4.5 Facilities .................................................................. 21
4.6 Contracts; No Defaults ...................................................... 21
4.7 No Conflict or Violation .................................................... 22
4.8 Unaudited Financial Statements .............................................. 23
4.9 Absence of Certain Changes or Events ........................................ 23
4.10 No Undisclosed Liabilities .................................................. 25
4.11 Accounts Receivable and Payable ............................................. 25
4.12 Inventories ................................................................. 25
4.13 Intellectual Property Rights ................................................ 26
4.14 Litigation .................................................................. 27
4.15 Labor Matters ............................................................... 27
4.16 Compliance with Law; Permits ................................................ 27
4.17 Taxes ....................................................................... 28
4.18 Severance Arrangements ...................................................... 28
4.19 Insurance ................................................................... 28
4.20 Purchase Commitments ........................................................ 29
4.21 Suppliers ................................................................... 29
4.22 Bank Accounts ............................................................... 29
4.23 Environmental Matters ....................................................... 29
-i-
4.24 Employee Benefit Plans ..................................................... 29
4.25 No Brokers ................................................................. 32
4.26 No Other Agreements to Sell the Assets or Capital Stock of the Company ..... 32
4.27 Material Misstatements Or Omissions ........................................ 32
4.28 Investments ................................................................ 32
4.29 Insider Interests .......................................................... 32
4.30 Securities matters ......................................................... 33
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF THE BUYER .................................. 33
5.1 Organization of Buyer and Mergeco .......................................... 33
5.2 Authorization .............................................................. 33
5.3 No Conflict or Violation ................................................... 34
5.4 Consents and Approvals ..................................................... 34
5.5 Disclosure Documents ....................................................... 34
5.6 Capitalization ............................................................. 34
5.7 Litigation ................................................................. 34
5.8 No Undisclosed Liabilities ................................................. 35
5.9 No Brokers ................................................................. 35
5.10 Material Misstatements Or Omissions ........................................ 35
ARTICLE 6 COVENANTS OF THE STOCKHOLDER, THE COMPANY, AND THE BUYER ..................... 35
6.1 Further Assurances: ........................................................ 35
6.2 Conduct of Business ........................................................ 36
6.3 Records .................................................................... 38
6.4 Access of the Buyer ........................................................ 38
6.5 Environmental .............................................................. 39
6.6 Notification of Certain Matters ............................................ 39
6.7 No Mergers, Consolidations, Sale of Stock, Etc ............................. 40
6.8 Landlord Consents .......................................................... 40
6.9 Payment of Indebtedness by Affiliates ...................................... 40
6.10 Approval of Shareholders ................................................... 40
6.11 Certificates of Merger ..................................................... 40
6.12 Excluded Assets ............................................................ 40
ARTICLE 7 CONDITIONS TO THE STOCKHOLDER'S OBLIGATIONS .................................. 41
7.1 Representations, Warranties and Covenants .................................. 41
7.2 No Injunction .............................................................. 41
7.3 Certificates ............................................................... 41
7.4 Corporate Documents ........................................................ 41
7.5 Employment Agreement ....................................................... 41
7.6 Releases of Personal Guarantees ............................................ 41
7.7 Due Diligence .............................................................. 41
ARTICLE 8 CONDITIONS TO THE BUYER'S OBLIGATION ......................................... 41
8.1 Representations, Warranties and Covenants .................................. 42
8.2 No Governmental Proceedings or Litigation .................................. 42
-ii-
8.3 Due Diligence and Audit ............................................ 42
8.4 No Injunction ...................................................... 42
8.5 Certificates ....................................................... 42
8.6 Liens .............................................................. 42
8.7 401(k) Plan ........................................................ 42
8.8 Resignation of Officers and Directors and Release .................. 42
ARTICLE 9 ACTIONS BY THE STOCKHOLDERS AND THE BUYER AFTER THE CLOSING .......... 43
9.1 Books and Records .................................................. 43
9.2 Survival of Representations, Etc ................................... 43
9.3 Indemnification .................................................... 43
9.4 Certain Tax Matters ................................................ 46
ARTICLE 10 MISCELLANEOUS ....................................................... 48
10.1 Termination ........................................................ 48
10.2 Assignment ......................................................... 49
10.3 Notices; Transfer of Funds ......................................... 49
10.4 Choice of Law ...................................................... 49
10.5 Submission to Jurisdiction ......................................... 50
10.6 Entire Agreement, Amendments and Waivers ........................... 50
10.7 Multiple Counterparts .............................................. 50
10.8 Expenses ........................................................... 50
10.9 Invalidity ......................................................... 50
10.10 Titles; Gender ..................................................... 50
10.11 Publicity .......................................................... 50
10.12 Burden and Benefit ................................................. 51
10.13 Cumulative Remedies ................................................ 51
LIST OF EXHIBITS
Illustration of Earnout Exhibit A
Pledge Agreement Exhibit B
Registration Rights Agreement Exhibit C
Employment Agreement of ▇▇. ▇▇▇▇▇▇▇ Exhibit D
General Release Exhibit E
-iii-
AGREEMENT AND PLAN OF MERGER
This Agreement ("Agreement") entered into this 1st day of December, 2002,
by and among PAINCARE HOLDINGS, INC., a Florida corporation (the "Buyer"),
▇▇▇▇▇▇ ▇▇▇▇▇▇▇, M.D. (the "Stockholder"), and PAIN AND REHABILITATION NETWORK,
INC., a Florida corporation (the "Company").
BACKGROUND
A. The Stockholder owns all of the issued and outstanding capital stock
of the Company.
B. The parties wish to provide for the terms and conditions upon which a
merger of the Company with a new, to-be-formed, wholly-owned subsidiary
corporation of the Buyer ("Mergeco") would be consummated.
C. The Boards of Directors of Buyer and the Company have approved the
merger of the constituent corporations pursuant to the terms of this Agreement.
D. It is the intention of the parties hereto that the proposed merger
shall constitute a tax-free reorganization, as defined in Section 368(a)(1)(A)
and 368(a)(2)(D) of the Code (as hereinafter defined), and that this Agreement
shall also constitute a Plan of Reorganization.
E. The Buyer, the Stockholder, and the Company desire to make certain
representations, warranties, covenants, and agreements in connection with the
transactions contemplated by this Agreement.
TERMS OF AGREEMENT
In consideration of the mutual covenants and promises contained herein and
for other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1 DEFINITIONS
1.1 Defined Terms. As used herein, the terms below shall have the
following meanings. Any of these terms, unless the context otherwise requires,
may be used in the singular or plural depending upon the reference.
"Affiliate" shall have the meaning set forth in the Securities Exchange Act
of 1934, as amended, and the rules and regulations thereunder.
"Assets" shall mean all of the Company's right, title and interest in and
to all properties, assets and rights of any kind, whether tangible or
intangible, real or personal, owned by the Company or in which the Company has
any interest whatsoever, excluding the Excluded Assets, but including, without
limitation, all of the Company's right, title and interest in the following:
(a) all accounts and notes receivable, refunds or deposits and prepaid
expenses (including, without limitation, any prepaid insurance premiums);
(b) all cash and cash equivalents;
-4-
(c) all Contract Rights;
(d) all Leases;
(e) all Leasehold Estates;
(f) all Leasehold Improvements;
(g) all Fixtures and Equipment;
(h) all Inventory;
(i) all Books and Records;
(j) all Intellectual Property Rights;
(k) all Claims;
(l) all Insurance Policies;
(m) all Permits;
(n) all computers and software and software licenses; and
(o) all available supplies, sales literature, promotional literature,
customer, supplier and distributor lists, art work, display units, telephone and
fax numbers and purchasing records of the Company; and guaranties made by
suppliers in connection with the Assets or services furnished to the Company.
"Benefit Arrangement" shall mean any employment, consulting, severance or
other similar contract, arrangement or policy and each plan, arrangement
(written or oral), program, agreement or commitment providing for insurance
coverage (including any self-insured arrangements), workers' compensation,
disability benefits, supplemental unemployment benefits, vacation benefits,
retirement benefits, life, health, disability or accident benefits (including,
without limitation, any "voluntary employees' beneficiary association" as
defined in Section 501(c)(9) of the Code providing for the same or other
benefits) or for deferred compensation, profit-sharing bonuses, stock options,
stock appreciation rights, stock purchases or other forms of incentive
compensation or post-retirement insurance, compensation or benefits that (i) is
not a Welfare Plan, Pension Plan or Multiemployer Plan, (ii) is entered into,
maintained, contributed to or required to be contributed to, as the case may be,
by the Company or an ERISA Affiliate or under which the Company or any ERISA
Affiliate may incur any liability, and (iii) covers any employee or former
employee of the Company or any ERISA Affiliate (with respect to their
relationship with such entities).
-5-
"Books and Records" shall mean all books, records, lists, ledgers, files,
reports, plans, drawings and operating records of any kind pertaining to the
Company, including, without limitation, all corporate and tax books and records
of the Company.
"Buyer Material Adverse Effect" shall mean a Material Adverse Effect on the
financial condition, business, earnings, results of operations, assets,
liabilities or operations of the Buyer, taken as a whole.
"Buyer Shares" shall mean shares of the Buyer's common stock, no par value
per share.
"Buyer's Auditor" shall mean Parks, Tschopp, ▇▇▇▇▇▇▇▇ and ▇▇▇ and their
successors.
"Claims" shall mean all claims, causes of action, chooses in action, rights
of recovery and rights of set-off of whatever kind or description against any
person or entity arising out of or relating to the Assets or relating to the
Company.
"Closing Balance Sheet" shall mean the unaudited balance sheet of the
Company, dated the Closing Date.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and the
Treasury Regulations.
"Company Common Stock" shall mean the Common Stock of the Company, $.10 par
value per share.
"Company Material Adverse Effect" shall mean a Material Adverse Effect on
the financial condition, business, earnings, results of operations, assets,
liabilities or operations of the Company, taken as a whole.
"Company Shares" shall mean all the issued and outstanding shares of
capital stock of the Company.
"Contract" shall mean any of the agreements, contracts, Leases, notes,
loans, evidence of Indebtedness, purchase orders, letters of credit, franchise
agreements, undertakings, covenants not to compete, employment agreements,
licenses, instruments, obligations, commitments, policies, purchase and sales
orders, quotations and other executory commitments to which the Company is a
party or to which any of the Assets is subject, whether oral or written, express
or implied.
"Contract Rights" shall mean all of the Company's rights and obligations
under each Contract.
"Disclosure Schedules" shall mean the schedules executed and delivered by
the Company and Stockholder to the Buyer which set forth any exceptions to the
representations and warranties contained in Article 4 hereof and certain other
information called for by Article
-6-
4 hereof and other provisions of this Agreement. Unless otherwise specified,
each reference in Article 4 to any numbered section is a reference to that
numbered section which is included in the Disclosure Schedules. The Disclosure
Schedules will be attached collectively to this Agreement.
"Employee Plans" shall mean all Benefit Arrangements, Multiemployer Plans,
Pension Plans and Welfare Plans.
"Encumbrance" shall mean any claim, lien, pledge, option, charge, easement,
security interest, deed of trust, mortgage, right-of-way, encroachment, building
or use restriction, conditional sales agreement, encumbrance or other rights of
third parties, whether voluntarily incurred or arising by operation of law, and
includes, without limitation, any agreement to give any of the foregoing in the
future and any contingent sale or other title retention agreement or lease in
the nature thereof.
"Environmental Laws" shall mean all federal, state, district, local, and
foreign laws, all rules or regulations promulgated thereunder, and all orders,
consent orders, judgments, notices, permits, or demand letters issued,
promulgated, or entered pursuant thereto, relating to pollution or protection of
the environment (including, without limitation, ambient air, surface water,
ground water, land surface, or subsurface strata), including, without
limitation, (i) laws relating to emissions, discharges, releases, or threatened
releases of pollutants, Contaminants, chemicals, materials, wastes, or other
substances into the environment and (ii) laws relating to the identification,
generation, manufacture, processing, distribution, use, treatment, storage,
disposal, recovery, transport, or other handling of pollutants, contaminants,
chemicals, industrial materials, wastes, or other substances. Environmental Laws
shall include, without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, the Toxic Substances Control
Act, as amended, the Hazardous Materials Transportation Act, as amended, the
Resource Conservation and Recovery Act, as amended, the Clean Water Act, as
amended, the Safe Drinking Water Act, as amended, the Clean Air Act, as amended,
the Atomic Energy Act of 1954, as amended, the Occupational Safety and Health
Act, as amended, and all analogous laws promulgated or issued by any state or
other governmental authority, including state laws imposing notice or
remediation requirements in connection with the transfer of industrial
establishments.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" shall mean any entity which is (or at any relevant time
was) a member of a "controlled group of corporations" with or under "common
control" with the Company as defined in Section 414(b) or (c) of the Code.
"Excluded Assets" shall mean those assets of the Company retained by
Stockholder and listed on Schedule 1.1 hereto.
-7-
"Facilities" shall mean all plants, offices, manufacturing facilities,
stores, warehouses, improvements, administration buildings, and all real
property and related facilities owned or leased by the Company.
"Facility Leases" shall mean all of the Leases of Facilities.
"Fixtures and Equipment" shall mean all of the furniture, fixtures,
furnishings, machinery and equipment, spare parts, supplies, Vehicles and other
tangible personal property owned by the Company and located in, at or upon the
Facilities as of the Unaudited Balance Sheet Date plus all additions,
replacements or deletions since the Unaudited Balance Sheet Date.
"Formula Periods" shall mean the three (3) consecutive twelve (12) month
periods commencing on January 1, 2003.
"Formula Profits" shall mean the earnings of the Surviving Corporation
before deductions for interest, taxes, depreciation, and amortization of the
Surviving Corporation, as calculated utilizing generally accepted accounting
principles by the Buyer's independent certified public accountants for annual
Formula Periods, where possible, and as calculated by Buyer for quarterly and
less than quarterly Formula Periods. Notwithstanding the foregoing, for purposes
of determining Formula Profits: (i) there shall not be included any charge for
corporate overhead of Buyer or other administrative or similar charges that
Buyer might impose upon the Surviving Company, except those charges for services
provided directly to and for the benefit of the Surviving Company, (ii) there
shall not be included any non-recurring charges, losses, profits, gains, or
non-cash adjustments not related to the ongoing operations of the business,
including, but not limited to discontinued operations, extraordinary items,
acquisition costs and goodwill charges incurred in connection with this
Agreement (except for the write-off of any goodwill with respect to the
Surviving Corporation in accordance with FASA 142), or unusual or infrequent
items as they are defined under generally accepted accounting principles, and
(iii) there shall not be included any charge related to grants or exercises of
options pursuant to the employment agreement with the Stockholder; but (iv)
there shall be included revenues and expenses associated with the Buyer's MedX
Rehabilitation Program which may be implemented by the Surviving Corporation
subsequent to closing, except as the parties may otherwise agree in writing.
"401(k) Plan" shall mean the 401(k) Profit Sharing Plan for Employees of
the Company.
"GAAP" shall mean generally accepted accounting principles in the United
States of America, as in effect from time to time, consistently applied.
"Indebtedness" shall mean, at any date, without duplication, (i) all
obligations of the Company for borrowed money, (ii) all obligations properly
recordable as a liability on the financial statements of the Company, evidenced
by bonds, debentures, notes or other similar instruments, (iii) all obligations
of the Company to pay the deferred purchase price of property except trade
accounts payable arising in the ordinary course of business, (iv) the net
-8-
present value of future minimum lease payments under capital leases, (v) all
Indebtedness (as defined in clauses (i) through (iv) above) of others secured by
a lien on any asset of the Company, whether or not such Indebtedness is assumed
by the Company, and (vii) all Indebtedness (as defined in clauses (i) through
(v) above) of others guaranteed by the Company.
"Installment Payments" shall mean the deferred portion of the Total Merger
Consideration to be paid pursuant to Section 2.4.2.
"Insurance Policies" shall mean the insurance policies relating to the
Assets or relating to the Company listed in Disclosure Schedule 4.19.
"Inventory" shall mean (a) all of the Company's inventories within the
Facilities or wherever otherwise located held for resale or lease to the
Company's customers, (b) all office supplies and similar materials of the
Company located in the Facilities or wherever otherwise located, and (c) all of
the raw materials, work in process, spare parts, finished products, wrapping,
supply and packaging items, employee uniforms and similar items of the Company
in the Facilities or wherever otherwise located.
"Leasehold Estates" shall mean all of the Company's rights and obligations
as lessee under the Leases listed on a Disclosure Schedule.
"Leasehold Improvements" shall mean all of the leasehold improvements
situated in or on the property leased under the Leases.
"Leases" shall mean all of the leases of the Company listed on a Disclosure
Schedule and all other leases relating to the Assets that are not required to be
scheduled pursuant to this Agreement.
"Multiemployer Plan" shall mean any "multiemployer plan," as defined in
Section 4001(a)(3) of ERISA, (1) which the Company or any ERISA Affiliate
maintains, administers, contributes to or is required to contribute to, or,
after September 25, 1980, maintained, administered, contributed to or was
required to contribute to, or under which the Company or any ERISA Affiliate may
incur any liability and (2) which covers any employee or former employee of the
Company or any ERISA Affiliate (with respect to their relationship with such
entities).
"Organizational Documents" shall mean (a) the articles or certificate of
incorporation and the bylaws of a corporation; (b) the partnership agreement and
any statement of partnership of a general partnership; (c) the limited
partnership agreement and the certificate of limited partnership of a limited
partnership; (d) the limited liability company agreement and the certificate of
formation (or similar document) of a limited liability company; (e) any charter
or similar document adopted or filed in connection with the creation, formation,
or organization of a Person; and (f) any amendment to any of the foregoing.
-9-
"Owned Real Property" shall mean all real property owned in fee by the
Company, including, without limitation, all rights, easements and privileges
appertaining or relating thereto, all buildings, fixtures and improvements
located thereon, and all Facilities thereon, if any.
"PBGC" shall mean the Pension Benefits Guaranty Corporation.
"Pension Plan" shall mean any "employee pension benefit plan" as defined in
Section 3(2) of ERISA (other than a Multiemployer Plan) (1) which the Company or
any ERISA Affiliate maintains, administers, contributes to or is required to
contribute to, or, within the five years prior to the Closing Date, maintained,
administered, contributed to or was required to contribute to, or under which
the Company or any ERISA Affiliate may incur any liability and (2) which covers
any employee or former employee of the Company or any ERISA Affiliate (with
respect to their relationship with such entities).
"Permits" shall mean all licenses, permits and other governmental
authorizations necessary to carry on the business of the Company as presently
conducted and as proposed to be conducted.
"Person" shall mean any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, labor union or other entity or governmental
body.
"Regulations" shall mean any laws, statutes, ordinances, regulations,
rules, notice requirements, agency guidelines and orders of any federal, state
or local government and any other governmental department or agency, including,
without limitation, Medicare, Medicaid, insurance, patient brokering and
referral, healthcare, Environmental Laws, energy, motor vehicle safety, public
utility, zoning, building and health codes, occupational safety and health laws
and laws respecting employment practices, employee documentation, terms and
conditions of employment and wages and hours.
"Representative" shall mean any officer, director, principal, attorney,
agent, employee or other representative.
"Subsidiary" shall mean (i) any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations other than
the last corporation in the unbroken chain then owns stock possessing 50% or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain; (ii) any partnership in which the Company is a
general partner; or (iii) any partnership in which the Company possesses a 50%
or greater interest in the total capital or total income of such partnership.
"Tax" or "Taxes" means any federal, state, local or foreign income, gross
receipts, license, capital stock, franchise, profits, payroll, employment,
withholding, social security, unemployment, disability, real property, ad
valorem/personal property, stamp, excise, occupation, sales, use, transfer,
environmental, customs duties, value added, alternative
-10-
or add-on minimum, estimated or other tax, including any interest, penalty or
addition thereto, whether disputed or not.
"Tax Returns" shall mean any return, declaration, report, claim for refund,
information return or statement or other document (including schedules or any
related or supporting information), and including any amendment thereof, filed
or required to be filed with any governmental entity or other authority in
connection with the determination, assessment or collection of any Tax or the
administration of any laws, regulations or administrative requirements relating
to any Tax.
"Total Merger Consideration" shall mean the sum of (i) the Initial Merger
Consideration, and (ii) the Installment Payments.
"Treasury Regulations" shall mean the applicable regulations promulgated
under the Code.
"Unaudited Balance Sheets" shall mean the unaudited balance sheets of the
Company, together with any notes thereto, for the years ended December 31, 2001,
and 2000.
"Unaudited Balance Sheet Date" shall mean the unaudited balance sheet of
the Company dated December 31, 2001.
"Unaudited Financial Statements" shall mean (i) the Company's Unaudited
Balance Sheets and the related statements of income, shareholders' equity, and
cash flows for each of the two fiscal years then ended.
"Vehicles" shall mean all automobiles and other vehicles owned or leased by
the Company.
"Welfare Plan" shall mean any "employee welfare benefit plan" as defined in
Section 3(l) of ERISA, (1) which the Company or any ERISA Affiliate maintains,
administers, contributes to or is required to contribute to, or under which the
Company or any ERISA Affiliate may incur any liability and (2) which covers any
employee or former employee of the Company or any ERISA Affiliate (with respect
to their relationship with such entities).
1.2 Other Defined Terms. In addition to the terms defined in the Recitals
to this Agreement and Section 1.1 hereof, the following terms shall have the
meanings defined for such terms in the Sections set forth below:
-----------------------------------------------------
Term Section
-----------------------------------------------------
Act 4.31
-----------------------------------------------------
Actions 4.14
-----------------------------------------------------
Certificates 3.2.1
-----------------------------------------------------
Claim Notice 9.3.3
-----------------------------------------------------
Closing 3.1
-----------------------------------------------------
Closing Date 3.1
-----------------------------------------------------
-11-
-------------------------------------------------------------
Computer Software 4.13.1
-------------------------------------------------------------
Constituent Corporations 2.1
-------------------------------------------------------------
Damages 9.3.7
-------------------------------------------------------------
Earnings Threshold 2.4.2
-------------------------------------------------------------
Effective Time 2.2.2
-------------------------------------------------------------
Formula Periods 2.4.2
-------------------------------------------------------------
Indemnity Claim 9.3.3
-------------------------------------------------------------
Initial Merger Consideration 2.3.4
-------------------------------------------------------------
Installment Payments 2.4.2
-------------------------------------------------------------
Intellectual Property Rights 4.13.1
-------------------------------------------------------------
Leased Property 4.5.4
-------------------------------------------------------------
Merger 2.2.1
-------------------------------------------------------------
Merger Documents 2.2.2
-------------------------------------------------------------
Option 2.3.2
-------------------------------------------------------------
Personnel 4.9(b)(i)
-------------------------------------------------------------
Surviving Corporation 2.2.1
-------------------------------------------------------------
ARTICLE 2 PLAN OF MERGER
2.1 Organization of Mergeco. Prior to the Closing, Buyer will form and
organize "Mergeco" as a second tier, wholly-owned, Florida subsidiary
corporation of Buyer. Buyer will capitalize Mergeco in such a manner as Buyer
deems reasonably necessary to effect the transactions contemplated by this
Agreement. Mergeco and the Company are sometimes hereinafter referred to
collectively as the "Constituent Corporations."
2.2 The Merger.
2.2.1 Merger. Subject to the terms and conditions of this Agreement, at the
Effective Time (as such term is defined in Section 2.2.2 hereof), Mergeco shall
be merged with and into the Company (the "Merger") in accordance with the
provisions of the merger laws of the State of Florida, and the separate
corporate existence of Mergeco shall cease, and the Company shall continue as
the surviving corporation under the laws of the State of Florida (the "Surviving
Corporation"). The Surviving Corporation shall continue to operate under the
Company's current name, unless Buyer determines that it is in its best interest
to change such name.
2.2.2 Effective Time of Merger. The Merger shall become effective at the
time of filing of appropriate articles of merger with the Secretary of State of
the State of Florida in accordance with the provisions of the laws of the State
of Florida (the "Merger Documents"). The Merger Documents shall be filed at the
time of the Closing (as such term is defined in Section 3.1 hereof). The date
and time when the Merger shall become effective is hereinafter referred to as
the "Effective Time."
-12-
2.2.3 Effect of Merger. At the Effective Time, the Surviving Corporation
shall thereupon and thereafter possess all assets and property of every
description, and every interest therein, wherever located, and the rights,
privileges, immunities, powers, franchises, and authority, of a public as well
as of a private nature, of each of the Constituent Corporations. All obligations
belonging to or due to each of the Constituent Corporations, all of which shall
be vested in the Surviving Corporation without further act or deed, and the
title to any real estate or any interest therein vested in either of the
Constituent Corporations shall not revert or in any way be impaired by reason of
the Merger. The Surviving Corporation shall be liable for all obligations of
each of the Constituent Corporations, including liability to dissenting
shareholders, and any claim existing, or action or proceeding pending by or
against either of the Constituent Corporations, may be prosecuted to judgment,
with right of appeal, as if the Merger had not taken place, or the Surviving
Corporation may be substituted in its place, and all rights of creditors of each
Constituent Corporation shall be preserved unimpaired, and all liens upon the
property of either of the Constituent Corporations shall be preserved
unimpaired, on only the property affected by such liens immediately prior to the
Effective Time, all with the effect set forth in the laws of the State of
Florida.
2.3 Merger Conversion. At the Effective Time, by virtue of the Merger and
without any action on the part of Buyer, Mergeco, the Company, the Stockholder
or any other holder of any of the securities of the Company, the following shall
occur:
2.3.1 Conversion of Shares. Each Company Share issued and outstanding
immediately prior to the Effective Time shall be delivered to Buyer and shall be
exchanged for the right to receive from Buyer the Initial Merger Consideration
as described below.
2.3.2 Conversion of Options. All outstanding options, warrants, convertible
notes, preferred stock and other rights to purchase Company Shares (an "Option")
outstanding as of the Effective Time shall be canceled and shall become null and
void, ad initio.
2.3.3 Company Shares. The Company Shares then issued and outstanding
immediately prior to the effectiveness of the Merger shall, by virtue of the
Merger and without any action on the part of the holder thereof, be deemed
canceled and extinguished.
2.4 Consideration. The Total Merger Consideration shall be payable as set
forth below.
2.4.1 Initial Merger Consideration. The initial consideration payable by
Buyer, at Closing, pursuant to Section 2.3.1 (the "Initial Merger
Consideration") shall be (A) 1,000,000 Buyer Shares priced for these purposes at
$1.00 per share; and (B) $1,000,000 paid in the form of cash.
2.4.2 Installment Payments. Subject to the condition that the Surviving
Corporation achieves Formula Profits of at least $600,000 (the "Initial Earnings
Threshold") in the twelve (12) month period beginning January 1, 2003 (the
"First Formula Period") and $800,000 (the "Subsequent Earnings Threshold") for
each of the two (2) successive twelve (12) month periods (the "Second and Third
Formula Periods") following the First Formula
-13-
Period, Buyer shall pay to the Stockholder additional consideration of
$2,000,000 payable in three equal annual installments (in the form of
consideration and subject to adjustment as provided below) within forty-five
(45) days following the end of each Formula Period (the "Installment Payments").
(a) With respect to the First Formula Period: (i) 50.0% of such
Installment Payment shall be made in the form of cash; and (ii) 50% in Buyer's
Shares priced at $1.00 per share.
(b) With respect to the Second and Third Formula Periods: (i) 50% of such
Installment Payment shall be made in the form of cash; and (ii) 50% in Buyer's
Shares priced at their then Fair Market Value.
(c) In the event that the Company fails to achieve the Earnings Threshold
for any Formula Period, the amount of the Installment Payment for such period
shall be calculated based on the following formula: ([Actual Recognized Formula
Profits/Earnings Threshold] X 90%) X 666,667 = Amount of Payment. The
application of this formula is as follows:
(i) First, divide the Company's actual recognized Formula Profits for the
subject Formula Period by the Earnings Threshold amount (i.e., $800,000 for the
Second and Third Formula Periods);
(ii) Then, multiply the resulting quotient [as determined in 2.4.2.(b)(i)
above] by 90%;
(iii) Then, multiply the resulting product [as determined in 2.4.2.(b)(ii)
above] by the amount of the Installment Payment that would have otherwise been
due for the subject Formula Period saving for this section ($666,667);
(iv) Then, the resulting product [as determined in 2.4.2.(b)(iii) above] is
the amount of the Installment Payment due for the subject Formula Period.
(d) Notwithstanding Subparagraph (d) above, the right of the Stockholder
to receive theaggregate amount of $2,000,000 in Installment Payments shall be
cumulative over the Formula Periods plus one additional successive 12-month
period. Thus, if there is a reduction in the Installment Payment in any
applicable Formula Period as a result of the actual recognized Formula Profits
being less than the Earnings Threshold for that Formula Period, then the
difference between the actual Installment Payment made and the intended
Installment Payment may be made up in any applicable, subsequent Formula Period
plus one additional successive 12-month period by multiplying such excess
Formula Profits (i.e., actual recognized Formula Profits which are greater than
the Earnings Threshold for that Formula Period, or $800,000 in the case of the
one additional successive 12-month) by 75%. Such credit amount (which in no
event shall ever exceed the aggregate amount of unpaid Install Payments), if
any, shall be paid to the Stockholder in the same percentages and form as the
-14-
Installment Payment for the Installment Period in which it is calculated.
In no event, however, shall the Stockholder receive an amount in excess of
$2,000,000 in Installment Payments.
(e) Set forth in Exhibit "A" is an illustration of the application of the
foregoing formula.
(f) Buyer and the Surviving Corporation shall make available to
Stockholder its financial records and information necessary to verify the
computation of Formula Profits. In the event Stockholder sends written notice to
Buyer within thirty (30) days of his receipt of Buyer's calculation of Formula
Profit of his objection to the computation, the parties shall have thirty (30)
days from the date of such notice to agree upon the amount of the Installment
Payment for the period in dispute. In the event the parties fail to agree on
such amount, then a mutually agreeable independent public accountant shall be
appointed to resolve the dispute (the "Auditor"). The Auditor shall make a final
and binding resolution of the disagreement between the parties and based on such
resolution, shall make a final and binding determination of the Formula Profits
for the period in dispute or the amount owed to the Stockholder for the period
in dispute. The Auditor shall be instructed to use every reasonable effort to
perform its dispute resolution function within thirty (30) days of submission of
the matter to it, and in any case, as soon as is practicable after such
submission. The Stockholder and the Buyer shall cooperate to provide the Auditor
with such information and documents reasonably requested by the Auditor to make
its determination. All accounting fees and other expenses (collectively, "Audit
Expenses") of the Audit shall be paid by the Stockholder if there is no
Significant Discrepancy, otherwise all Audit Expenses shall be paid by the
Buyer. Audit Expenses for which the Buyer is responsible shall not be charged
against income of the Surviving Company for any Formula Period, otherwise such
expenses will be a charge against income of the Surviving Company. A
"Significant Discrepancy" exists if the difference between the Installment
Payment in any audit is (a) greater than or equal to 5% of the Buyer's
calculation of the Installment Payment.
(g) Payment of the Installment Payments will be secured by all of the
issued and outstanding capital stock of the Surviving Corporation. To that end,
the Surviving Corporation will enter into with the Stockholder a pledge
agreement in the form attached hereto as Exhibit "B" (hereinafter the "Pledge
Agreement").
2.4.3 Capital Adjustments.
A. In the event of a stock dividend, recapitalization, or merger in which
Buyer is the surviving corporation, split-up, combination or exchange of shares
or the like which results in a change in the number or kind of shares of common
stock which is outstanding immediately prior to such event, the rights of the
Stockholder to receive Buyer Shares in respect of this Agreement and the price
thereof, shall be appropriately adjusted in the same manner as the number and
kind of shares a shareholder of Buyer who owned the same number and kind of
shares immediately prior to such event. Such adjustments shall be made in
-15-
good faith by the Board of Directors of Buyer, whose determination shall be
conclusive and binding on all parties, subject to manifest error.
B. In case of any consolidation or merger of Buyer with or into another
party or parties or the conveyance of all or substantially all of the assets of
Buyer to another party or parties or a share exchange transaction involving more
than 50% of the issued and outstanding common stock of Buyer, the Buyer Shares
and right to receive Buyer Shares shall thereafter be convertible into the
number of shares of stock, options or other securities or property to which a
shareholder of the Buyer who owned the same number and kind of shares prior to
such event would have been entitled upon such consolidation, merger, conveyance,
conversion or exchange; and, in any such case, appropriate adjustment shall be
made in the application of the provisions herein set forth with respect to the
rights and interest thereafter of the Stockholder' rights to receive Buyer
Shares, to the end that the provisions set forth herein shall thereafter be
applicable, as nearly as reasonably possible, in relation to any shares of stock
or other property thereafter deliverable upon the Stockholder's entitlement to
same.
2.5 Articles of Incorporation, Bylaws, Registered Agent of the Surviving
Corporation. The Articles of Incorporation and bylaws of the Company, as in
effect immediately prior to the Effective Time, shall be the Articles of
Incorporation and bylaws of the Surviving Corporation, except as such Articles
of Incorporation and bylaws may be amended by certificate of merger, or until
thereafter amended as provided by law, and the name and address of the
registered agent of the Company immediately prior to the Effective Time shall be
the name and address of the registered agent upon whom any process, notice or
demand against either of the Constituent Corporations or the Surviving
Corporation may be served until thereafter changed by Buyer.
2.6 Directors and Officers of the Surviving Corporation. The directors of
the Surviving Corporation shall initially be ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇ and
▇▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and such individuals shall hold office, subject to the
applicable provisions of the Articles of Incorporation of the Surviving
Corporation until the next annual shareholders' meeting of the Surviving
Corporation and until their respective successors shall be duly elected or
appointed and shall duly qualify. At the Effective Time, the officers of the
Company (which may include one or more of the officers of the Company)
immediately prior to the Effective Time shall, subject to the applicable
provisions of the Articles of Incorporation and Bylaws of the Surviving
Corporation, be the officers of the Surviving Corporation.
2.7 Registration Rights. At Closing the parties shall enter into a
Registration Rights Agreement substantially in the form attached hereto as
Exhibit "C"
2.8 Structuring Matters. The Stockholder acknowledges and agrees that
following the Merger, Buyer may take additional steps that it deems necessary or
appropriate to transfer its shares in the Surviving Corporation to another
wholly-owned subsidiary of Buyer. Buyer agrees to take such action in a manner
that would have no adverse tax effect to Stockholder. Stockholder agrees to
approve such action as a Shareholder of Buyer after the Merger if such
-16-
action is submitted for his approval, provided there are no adverse tax effects
related to such approval.
2.10 Operational Covenants. Without the prior written consent of ▇▇.
▇▇▇▇▇▇ ▇▇▇▇▇▇▇, which shall not be unreasonably withheld, Buyer shall not, prior
to the conclusion of the third Formula Period:
(a) reorganize the Surviving Corporation, whether by integrating or
consolidating the business of the Surviving Corporation with other operating
units of Buyer or its subsidiaries or affiliates, except in the case that at the
time of such integration or consolidation such transaction could not reasonably
be expected to have a Material Adverse Effect on the Formula Revenues;
(b) breach, or cause the Surviving Corporation to breach, the
Employment Agreements with ▇▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇;
(c) effect any reassignment, reprioritization, reallocation,
restructuring, or reduction of the Surviving Corporation's human or other
resources, their research and development initiatives, or their marketing
programs, except in a manner that at the time of such event could not reasonably
be expected to have a Material Adverse Effect on the Formula Revenues or that
are reasonably necessary in light of the Surviving Corporation's results of
operation;
(d) amend the articles of incorporation or bylaws of the Surviving
Corporation in any manner that at the time of such amendment could reasonably be
expected to have a Material Adverse Effect on the Formula Revenues;
(e) cause the Surviving Corporation to become a party to or terminate
any agreement which at the time such agreement is entered into or terminated
could reasonably be expected to have a Material Adverse Effect on the Formula
Revenues or that is reasonably necessary in light of the Surviving Corporation's
results of operation;
(f) cause the Surviving Corporation to undertake actions outside the
ordinary course of its business which at the time of such undertaking could
reasonably be expected to have a Material Adverse Effect on the Formula
Revenues;
(g) sell a material portion of the Surviving Corporation or its
assets, merge the Surviving Corporation with any other entity, sell a
controlling interest in the Surviving Corporation, or make any fundamental
change in the business of the Surviving Corporation unless such action(s) at the
time of such undertaking could not reasonably be expected to have a Material
Adverse Effect on the Formula Revenues or that is reasonably necessary in light
of the Surviving Corporation's results of operation;
-17-
The parties hereby acknowledge and agree that the foregoing conditions
shall become null and void and of no further force or effect if the Formula
Profits of the Surviving Corporation in each of any two (2) consecutive calendar
quarters are less than $120,000, or if the Formula Profits of the Surviving
Corporation in one (1) calendar quarter is less than $80,000.
In the event that Buyer defaults in its performance of any of its
obligations under this Section 2.10 and fails to cure such default within thirty
(30) days (or such other reasonable period if 30 days is not a sufficient amount
of time to cure such default, provided that Buyer shall have commenced in good
faith and is diligently pursuing its efforts to cure such default during such
30-day period) of receiving a written notice of default from the Stockholder,
Buyer shall be deemed to be in breach of this Agreement.
ARTICLE 3 CLOSING
3.1 Closing. Upon the terms and subject to the conditions set forth
herein, and subject to Section 10.1, the closing of the transactions
contemplated herein (the "Closing") shall be held at 10:00 o'clock A.M., Eastern
time, at the offices of Buyer on a date which is mutually acceptable to the
parties but not later than January 5, 2003 ("Closing Date"), unless the parties
hereto otherwise agree.
3.2 Deliveries at Closing.
3.2.1 Company Stock Certificates. The Stockholder shall, on the
Closing Date or as soon hereafter as reasonably possible, deliver to the Buyer
certificates evidencing all of the issued and outstanding shares of Company
Shares ("Certificates"), duly endorsed in blank for transfer or accompanied by
stock powers duly executed in blank.
3.2.2 Payment of Consideration. At the Closing, subject to the
conditions precedent to Closing as set forth in Article 7 and upon surrender of
the Certificates duly endorsed by the Stockholder, the Buyer shall pay to the
Stockholder the Initial Merger Consideration.
3.2.3 Payment to Non-holder. If the Merger Consideration (or any
portion thereof) is to be paid to a person other than the person in whose name
the certificates surrendered in exchange therefore are registered, it shall be a
condition to the payment of the Merger Consideration that the Certificates so
surrendered shall be properly endorsed or accompanied by appropriate stock
powers and otherwise be in proper form for transfer, that such transfer
otherwise be proper and that the person requesting such transfer pay to Buyer
any transfer or other taxes payable by reason of the foregoing or establish to
the satisfaction of Buyer that such taxes have been paid or are not required to
be paid.
-18-
3.2.4 Lost, Stolen, or Destroyed Certificates. In the event any
Certificate shall have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the person claiming such Certificate to be lost,
stolen or destroyed and subject to such other reasonable conditions as the Board
of Directors of the Surviving Corporation may impose, Buyer shall, or shall
reasonably cause the Surviving Corporation, as appropriate, to issue in exchange
for such lost, stolen or destroyed Certificate the Merger Consideration
deliverable in respect thereof.
3.2.5 Certificates and Other Documents. At the Closing, the Buyer and
the Stockholder shall deliver the certificates and other documents and items
described in Article 7 and Article 8.
3.2.6 Other Closing Transactions. At the Closing, each of the parties
shall take such other actions required hereby to be performed by it prior to or
on the Closing Date, including, without limitation, satisfying the conditions
set forth in Article 7 and Article 8.
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER AND THE
COMPANY
The Stockholder and the Company hereby jointly and severally represent and
warrant to the Buyer that the following representations and warranties are, as
of the date hereof, and will be, as of the Closing Date, true and correct:
4.1 Organization; Capitalization.
4.1.1 The Company is duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation and has full
corporate power and authority to conduct its business as it is presently being
conducted and to own and lease its properties and assets. Except as set forth in
Disclosure Schedule 4.1.1, the Company is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction in which such
qualification is necessary under the applicable law as a result of the conduct
of its business or the ownership of its properties except where the failure to
be so qualified and in good standing would not have a Material Adverse Effect.
Each jurisdiction in which the Company is qualified to do business as a foreign
corporation is listed in Disclosure Schedule 4.1.1.
4.1.2 The Stockholder has delivered to the Buyer copies of the
Organizational Documents of the Company, as currently in effect.
4.1.3 The capitalization of the Company as of the date hereof and as
of the Closing (including the identity of each shareholder and the number of
shares held by each) is set forth in Disclosure Schedule 4.1.3. All of the
Company's outstanding shares of capital stock are duly authorized, validly
issued, fully paid, non-assessable and free of preemptive rights. Each
Stockholder represents that he owns and will own beneficially and of record all
of the outstanding shares of capital stock as of the date hereof or as of the
Closing Date,
-19-
respectively, of the Company, as set forth opposite such Stockholder's name in
Disclosure Schedule 4.1.3, free and clear of all Encumbrances, with full right,
power and authority to transfer such shares to the Buyer. Except as set forth in
Disclosure Schedule 4.1.3, there are no outstanding subscriptions, calls,
commitments, warrants or options for the purchase of shares of any capital stock
or other securities of the Company or any securities convertible into or
exchangeable for shares of capital stock or other securities issued by the
Company, or any other commitments of any kind for the issuance of additional
shares of capital stock or other securities issued by the Company. Upon delivery
to the Buyer, the capital stock of the Company will be free and clear of all
Encumbrances and shall be duly authorized, validly issued, fully paid and
non-assessable. At the Closing, the Stockholder will transfer good and
marketable title to the capital stock of the Company to the Buyer.
4.1.4 The Company has not at any time had any Subsidiaries, and the
Company neither owns nor holds the right to acquire (directly or indirectly)
shares of capital stock in any other Person.
4.2 Authorization. The Company has all necessary corporate power and
authority and has taken all corporate action necessary to execute and deliver
this Agreement, to consummate the transactions contemplated hereby and to
perform its obligations hereunder, and no other proceedings on the part of the
Company are necessary to authorize this Agreement and the transactions
contemplated hereby. The Stockholder individually has the requisite power and
authority and has taken all action necessary to execute and deliver this
Agreement, to consummate the transactions contemplated hereby and to perform his
obligations hereunder, and no other actions on the part of the Stockholder are
necessary to authorize this Agreement and the transactions contemplated hereby.
This Agreement has been duly executed and delivered by the Stockholder and the
Company and is a legal, valid and binding obligation of the Stockholder and the
Company, enforceable against each of them in accordance with its terms, except
as may be limited by (i) bankruptcy, insolvency, moratorium, reorganization and
other similar laws affecting creditors' rights generally and (ii) the general
principles of equity, regardless of whether asserted in a proceeding in equity
or at law.
4.3 Consents and Approvals. Other than as provided in Disclosure Schedule
4.3, no notice to, declaration, filing or registration with, or authorization,
consent or approval of, or permit from, any domestic or foreign governmental or
regulatory body or authority, or any other person or entity, is required to be
made or obtained by the Stockholder or the Company in connection with the
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby.
4.4 Title to Assets. Disclosure Schedule 4.4 identifies all real and
personal property with a book value or replacement cost in excess of $5,000
owned or leased by the Company. The Company owns free and clear of any
Encumbrances or, as set forth in Disclosure Schedule 4.4, leases or has rights
to use, the Assets set forth in Disclosure Schedule 4.4, except for (i) minor
liens or Encumbrances that in the aggregate are not substantial in amount, do
not materially detract from the value of the Assets subject thereto or interfere
with
-20-
the present use thereof and have not arisen other than in the ordinary course of
business and (ii) Encumbrances specifically identified in Disclosure Schedule
4.4.
4.5 Facilities. Disclosure Schedule 4.5 contains (i) a complete and
accurate list of all Facilities, and (ii) a complete and accurate list of all
Facility Leases.
4.5.1 Owned Real Property. The Company has no Owned Real Property.
4.5.2 Actions. There are no pending or, to the knowledge of the
Company and the Stockholder, threatened condemnation proceedings or other
Actions relating to any Facility.
4.5.3 Leases or Other Agreements. Except for Facility Leases listed in
Disclosure Schedule 4.5, there are no leases, subleases, licenses, occupancy
agreements, options, rights, concessions or other agreements or arrangements,
written or oral, granting to any person the right to purchase, use or occupy any
Facility, or any real property of the Company or any portion thereof or interest
in any such Facility or real property.
4.5.4 Facility Leases and Lease. With respect to each Facility Lease,
the Company has an unencumbered interest in the Leasehold Estate.
4.5.5 No Special Assessment. The Company has not received notice of
any special assessment relating to any Facility or any portion thereof, and
there is no pending or to the knowledge of the Stockholder and the Company
threatened special assessment.
4.6 Contracts; No Defaults. Except for Contracts listed in Disclosure
Schedule 4.6, the Company is not a party to, or bound by, any Contract of any
kind to be performed after the Closing Date (i) pursuant to which it is
obligated to expend more than $25,000 in any twelve-month period and that is not
subject to cancellation on not more than 60 days' notice by the Company without
penalty or increased cost or (ii) with any Personnel or affiliates of the
Company or any Stockholder or relatives of any of the foregoing. To the
knowledge of the Stockholder and the Company, there is no default by any party
to any such Contract, which default could have a Company Material Adverse
Effect. Disclosure Schedule 4.6 lists the following Contracts, agreements and
other written arrangements to which the Company is a party:
(a) any written arrangement (or group of related written arrangements)
for the lease of personal property providing for lease payments in excess of
$10,000 per annum;
(b) any written arrangement (or group of related written arrangements)
for the purchase or sale of raw materials, commodities, supplies, products or
other property or for the furnishing or receipt of services, including, without
limitation, any customer or vendor contracts in excess of $10,000 per annum;
(c) any written arrangement (or group of related written arrangements)
concerning a partnership or joint venture with any other Person;
-21-
(d) any written arrangement (or group of related written arrangements)
under which it has created, incurred, assumed or guaranteed (or may create,
incur, assume or guarantee) Indebtedness (including capitalized lease
obligations) involving more than $10,000 in principal amount or under which it
has imposed (or may impose) a security interest or lien on any of its assets,
tangible or intangible;
(e) any written arrangement (or group of related written arrangements)
concerning confidentiality or non-competition arrangements;
(f) any written arrangement (or group of related written arrangements)
involving the Stockholder or any Affiliate of the Stockholder;
(g) any Employee Plan and any written arrangement with any of the
Company's directors, officers, shareholders or employees in the nature of a
collective bargaining agreement, employment agreement or severance agreement;
(h) any written arrangement for any capital expenditure in excess of
$10,000;
(i) any other written arrangement (or group of related written
arrangements) either involving aggregate payments of more than $25,000 or not
entered into in the ordinary course of business consistent with past practice;
and
(j) any oral contract, agreement or other arrangement with respect to
any of the matters referred to in the foregoing clauses (a) through (i) and any
proposal (whether oral or written) to enter into any contract, agreement or
other arrangement (other than sales presentations made to customers in the
ordinary course of business) with respect to any of the matters referred to in
the foregoing clauses (a) through (i).
The Company will deliver or make available to the Buyer a correct and
complete copy of each Contract listed in Disclosure Schedule 4.6. Except as set
forth in Disclosure Schedule 4.6, with respect to each Contract listed, to the
knowledge of the Stockholder and the Company, (A) the Contract is legal, valid,
binding, enforceable (except as such enforceability may be limited by (i)
bankruptcy, insolvency, moratorium, reorganization and other similar laws
affecting creditors' rights generally and (ii) the general principles of equity,
regardless of whether asserted in a proceeding in equity or at law) and in full
force and effect; (B) no party is in material breach or default, and no event
has occurred which with notice or lapse of time could constitute a material
breach or default or permit termination, modification or acceleration, under the
Contract; and (C) no party has repudiated any material term of the Contract, and
there are no renegotiations of, attempts to renegotiate, or outstanding rights
to renegotiate any material amounts paid or payable to the Company under current
or completed Contracts with any Person, and no such Person has made written
demand for such renegotiation.
4.7 No Conflict or Violation. Except as set forth in Disclosure Schedule
4.7, neither the execution, delivery and performance of this Agreement nor the
consummation of
-22-
the transactions contemplated hereby will result in (a) a violation of or a
conflict with any provision of the Organizational Documents of the Company, (b)
a breach of, or a default under, or the creation of any right of any party to
accelerate, terminate or cancel, any Contract, Permit, authorization or
concession to which the Company is a party or by which any of the Assets are
bound, (c) to the knowledge of the Company and Stockholder, a violation by the
Company or any Stockholder of any law, statute, rule, regulation, ordinance,
code, order, judgment, writ, injunction, decree or award applicable to the
Company or such Stockholder, or (d) an imposition of any material Encumbrance,
restriction or charge on the Company or any of the Assets. Except as set forth
in Disclosure Schedule 4.7, no consent, approval or authorization of, or
declaration, filing or registration with, any governmental or regulatory
authority, or any other person or entity, is required to be made or obtained by
the Company or any Stockholder in connection with the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby.
4.8 Unaudited Financial Statements. The Unaudited Financial Statements and
the Closing Balance Sheet fairly and accurately present, in all material
respects, the assets, liabilities (including all reserves) and financial
position of the Company as of the respective dates thereof and the results of
operations and changes in cash flows for the periods then ended.
4.9 Absence of Certain Changes or Events. Except as set forth in
Disclosure Schedule 4.9, since the Unaudited Balance Sheet Date to the knowledge
of Stockholder and the Company, there has not been any:
(a) change in the Company's financial condition or results of
operations, other than such changes that have not yet had and could not
reasonably be expected to have a Company Material Adverse Effect.
(b) (i) except for normal periodic increases in the ordinary course of
business consistent with past practice, increase in the compensation payable or
to become payable by the Company to any of its officers, directors, employees,
former employees, or agents (collectively, "Personnel"), (ii) grant, payment or
accrual, contingent or otherwise, for or to the credit of any of the Personnel
with respect to any bonus, incentive compensation, service award or other like
benefit, (iii) adoption, creation or amendment of any Employee Plan, (iv)
employment agreement (written or verbal) to which the Company is a party or (v)
other change in employment terms for any of the Company's officers, employees or
agents;
(c) sale, lease, assignment or transfer of any of the Assets, other
than to Persons that are not Affiliates for fair consideration and in the
ordinary course of business consistent with past practice and not individually
or in the aggregate material to the Company;
(d) cancellation, compromise, waiver or release of any rights or
claims (or series of related rights or claims) either (i) involving an Affiliate
of the Company or the Stockholder, (ii) involving more than $10,000, or (iii)
outside the ordinary course of business consistent with past practice;
-23-
(e) amendment, cancellation or termination of any Contract, or Permit
(i) involving an Affiliate of the Company, or (ii) involving payments in excess
of $25,000 in the aggregate, or (iii) that are otherwise material to the
Company;
(f) capital expenditure or the execution of any Lease, Contract, or
Permit (or series of related Contracts, Leases and Permits) or any incurring of
liability therefore (i) involving an Affiliate of the Company or any
Stockholder, (ii) involving payments in excess of $25,000 in the aggregate;
(g) change in accounting methods or practices by the Company;
(h) mortgage, pledge or other encumbrance of any of the Assets;
(i) redemption, purchase, or other acquisition of any of the Company's
equity securities, or any other transfer of the Assets to or on behalf of any
shareholder of the Company, the Stockholder or any other Affiliate of the
Company, including, but not limited to, any payment of principal of or interest
on any debt owed to any of the foregoing or the making of any loan to any of the
foregoing as an employee of the Company;
(j) issuance by the Company of, or commitment of the Company to issue,
any shares of stock or other equity securities or obligations or securities
convertible into or exchangeable for shares of stock or other equity securities;
(k) Indebtedness incurred by the Company for borrowed money or any
commitment to borrow money entered into by the Company or any loans or
guarantees made or agreed to be made by the Company;
(l) liabilities incurred (other than for borrowed money) involving
$10,000 or more except in the ordinary course of business and consistent with
past practice and not individually or in the aggregate material to the Company,
or any increase or change in any assumptions underlying, or methods of
calculating, any bad debt, contingency or other reserves;
(m) acceleration, termination, modification, cancellation or
threatened termination or cancellation of any Contract to which the Company is a
party or by which the Company is bound, outside the ordinary course of business
consistent with past practice or involving more than $10,000 in the aggregate;
(n) capital investment in, any loan to, or any acquisition of the
securities or assets of any other Person (i) involving an Affiliate of the
Company or any Stockholder, (ii) involving more than $10,000 in the aggregate,
or (iii) outside the ordinary course of business consistent with past practice;
(o) grant of any license or sublicense of any rights under or with
respect to any Intellectual Property Rights;
-24-
(p) agreement (either oral or written) by the Company or any
Personnel to do any of the foregoing; or other event or condition of any
character that in any one case or in the aggregate has a Company Material
Adverse Effect, or any event or condition (other than events or conditions
affecting the economy generally) known to the Company or any Stockholder that it
is reasonable to expect could, in any one case or in the aggregate, have a
Company Material Adverse Effect in the future.
4.10 No Undisclosed Liabilities. Except as set forth in Disclosure
Schedule 4.10, to the knowledge of the Company and the Stockholder, the Company
has no liabilities or obligations (absolute, accrued, contingent or otherwise)
except (i) liabilities that are reflected and reserved against on the Unaudited
Balance Sheet that have not been paid or discharged since the date thereof and
(ii) liabilities incurred by the Company since the Unaudited Balance Sheet Date
in the ordinary course of business consistent with past practice and in
accordance with this Agreement (none of which relates to any breach of contract,
breach of warranty, tort, infringement or violation of law or arose out of any
complaint, action, suit or proceeding except those which individually or in the
aggregate could not have a Company Material Adverse Effect).
4.11 Accounts Receivable and Payable. The accounts receivable of the
Company reflected on the Unaudited Balance Sheet, and all accounts receivable of
the Company arising since the Unaudited Balance Sheet Date, represent bona fide
claims against debtors for sales made, services performed or other charges
arising on or before the date hereof, and all the goods delivered and services
performed that gave rise to said accounts were delivered or performed in
accordance with the applicable orders, Contracts or customer requirements. All
accounts receivable of the Company reflected on the Closing Balance Sheet shall
be subject to no defenses, counterclaims or rights of setoff and shall be fully
collectible in the ordinary course of business, without cost to the Surviving
Corporation or Buyer, in collection efforts therefore, except to the extent of
any reserve with respect thereto set forth on the Closing Balance Sheet
(excluding the notes thereto). The accounts payable of the Company reflected on
the Closing Balance Sheet, and all accounts payable of the Company arising since
the Closing Balance Sheet Date, represent bona fide debts of the Company for
purchases made, services contracted for or other charges arising on or before
the date thereof, and all the goods purchased and services contracted for that
gave rise to said accounts were purchased or performed in accordance with the
applicable orders, Contracts or the Company requirements.
4.12 Inventories. The values at which the Inventories are shown on the
Closing Balance Sheet have been determined in accordance with the normal
valuation policy of the Company as described in the Unaudited Financial
Statements, consistently applied. The Inventories (and items of inventory
acquired or manufactured subsequent to the Closing Balance Sheet Date) consist
only of items of quality and quantity commercially usable and salable in the
ordinary course of business, except for any items of obsolete material or
material below standard quality, all of which have been written down to
realizable market value, or for which adequate reserves have been provided on
the Closing Balance Sheet. All inventories not written off have been priced at
the lower of cost or market on a first in, first out basis. The
-25-
current quantities of all Inventories are reasonable in the current
circumstances of the business of the Company.
4.13 Intellectual Property Rights.
4.13.1 Disclosure Schedule 4.13.1 (i) contains detailed information
(including where applicable the federal registration number and the date of
registration or application for registration and the name in which registration
was applied for) concerning (x) all of the Company's registrations of trademarks
and of other marks, trade names or other trade rights, and all pending
applications for any such registrations and all of the Company's patents and
copyrights and all pending applications therefore, (y) all computer software
used by the Company in the conduct of its business ("Computer Software")
indicating whether such Computer Software is owned or licensed and, if licensed,
the material terms of such license, and (z) all other trademarks and other
marks, trade names and other trade rights and all other trade secrets, designs,
plans, specifications, and other intellectual property rights of any kind of the
Company, whether or not registered, (all of the items referred to in this clause
(i) being "Intellectual Property Rights") and (ii) identifies any intellectual
property rights that any third party owns and that the Company uses or proposes
to use in its business, and specifies whether such use is or will be pursuant to
license, sublicense, agreement or permission. The Company owns (or, as set forth
in Disclosure Schedule 4.13.1, possesses adequate and enforceable licenses or
other rights to use) all Intellectual Property Rights now used or proposed to be
used in its business and has taken all reasonably necessary or appropriate
action to protect the Intellectual Property Rights. Except as set forth in
Disclosure Schedule 4.13.1, no Person has a right to receive a royalty or
similar payment in respect of any Intellectual Property Rights pursuant to any
contractual arrangements entered into by the Company or otherwise. Except as set
forth in Disclosure Schedule 4.13, the Company has not received notice nor has
the Company or any Stockholder any reason to believe that the use by the Company
of the Intellectual Property Rights is interfering with, infringing upon or
otherwise violating the rights of any third party in or to such Intellectual
Property Rights, and no proceedings have been instituted against or notices
received by the Company alleging that the Company's use or proposed use of any
Intellectual Property Rights infringes upon or otherwise violates any rights of
a third party in or to such Intellectual Property Rights, which infringement or
violation could have a Material Adverse Effect. The Intellectual Property Rights
are all those necessary for the operation of the business of the Company as it
is currently conducted. No employee of the Company has entered into any Contract
that restricts or limits in any way the scope or type of work in which the
employee may be engaged or requires the employee to transfer, assign, or
disclose information concerning his or her work to anyone other than the
Company.
4.13.2 The source codes for all Computer Software have been placed in
back-up files that are securely stored in a location other than the Facility or
Facilities where such Computer Software is used. All databases used in the
business of the Company are periodically (at least once every week) backed-up,
and such backed-up materials are moved to and securely stored at locations other
than the Facility or Facilities where such databases are used.
-26-
4.14 Litigation. Except as set forth in Disclosure Schedule 4.14, there is
no charge, complaint, action, order, writ, injunction, judgment or decree
outstanding or claim, suit, litigation, proceeding, labor dispute, arbitrable
action or investigation (collectively, "Actions") pending or, to the knowledge
of the Company or any Stockholder, threatened against, relating to or affecting
(i) the Company or the Assets or the operation of the business of the Company as
currently operated and as proposed to be operated, (ii) any Employee Plan or any
trust or other funding instrument, fiduciary or administrator thereof or (iii)
the transactions contemplated by this Agreement, before or by any federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, any of which is reasonably
expected to result in a loss not covered by insurance in excess of $10,000 or
reasonably expected to have a Company Material Adverse Effect. To the knowledge
of the Stockholder and the Company, the Company is not in default with respect
to any judgment, order, writ, injunction or decree of any court or governmental
agency, and there are no unsatisfied judgments against the Company or the
business of the Company. Except as set forth in Disclosure Schedule 4.14, each
Action pending or, to the knowledge of the Company or any Stockholder,
threatened (whether or not disclosed in Disclosure Schedule 4.14), is covered by
insurance of reputable and solvent insurance companies, and each such applicable
Insurance Policy is described in Disclosure Schedule 4.19 and is in full force
and effect, and, except as set forth in Disclosure Schedule 4.14, the Company
has not received any notice or, to the knowledge of the Company or any
Stockholder, threat of cancellation, limitation or non-coverage.
4.15 Labor Matters. Except as set forth in Disclosure Schedule 4.16, the
Company has not been and is not a party to any labor agreement with respect to
its employees with any labor organization, group or association. The Company has
not experienced any attempt by organized labor or its representatives to make
the Company conform to demands of organized labor relating to its employees or
to enter into a binding agreement with organized labor that would cover its
employees. The Company is in material compliance with all applicable laws
respecting employment practices, terms and conditions of employment and wages
and hours and, is not and has not engaged in any unfair labor practice. Except
as set forth in Disclosure Schedule 4.15, the Company is not liable for the
payment of any compensation, damages, taxes, fines, penalties, or other amounts,
however designated, for failure to comply with any of the foregoing legal
requirements. There is no unfair labor practice charge or complaint against the
Company pending before the National Labor Relations Board or any other
governmental agency arising out of the Company's activities, and the Company has
no knowledge of any facts or information that would give rise thereto; there is
no labor strike or labor disturbance pending against the Company nor is any
grievance currently being asserted; and since January 1, 1990, the Company has
not experienced a work stoppage or other labor difficulty.
4.16 Compliance with Law; Permits. Except as set forth in Disclosure
Schedule 4.16, the Company and the conduct of the business of the Company are in
compliance with all applicable Regulations, and judgments, decisions and orders
entered by any federal, state, local, or foreign court relating to the Assets or
the Company, except where the failure to comply could not reasonably be expected
to have a Company Material Adverse Effect. The Company has not received any
written notice to the effect that, or otherwise been advised that,
-27-
it is not in compliance with any Regulations. The Company, the Company has all
Permits, licenses authorizations and approvals, all of which are currently valid
and in full force and effect, necessary to carry on its business, which
licenses, Permits, authorizations and approvals are set forth in Disclosure
Schedule 4.16, except for those Permits that could not reasonably be expected to
have a Company Material Adverse Effect if not obtained.
4.17 Taxes. The Company has or will have filed all material federal, state,
local and foreign Tax Returns that are required to be filed by it on or prior to
the Closing Date (taking into account applicable extensions), all Taxes shown as
owing by the Company on all such Tax Returns have been fully paid or properly
accrued on the Company's financial statements other than such taxes as are being
contested in good faith, and all such Tax Returns are true and correct in all
material respects. The Tax Returns accurately reflect all liability for Taxes of
the Company for the periods covered thereby. Except as set forth in Disclosure
Schedule 4.17:
(a) all Taxes which the Company is obligated to withhold from amounts
owing to any employee, creditor or third party have been fully paid or properly
accrued;
(b) the Company is not a party to any tax sharing agreements;
(c) there are no liens for Taxes upon the assets of the Company which
are not provided for on the Unaudited Balance Sheet except liens for Taxes not
yet due and payable and liens for taxes that are being contested in good faith;
(d) there are no outstanding written requests, agreements, consents
or waivers to extend the statutory period of limitations applicable to the
assessment of any material Taxes or deficiencies against the Company;
(e) no claim has ever been made by an authority in a jurisdiction
where the Company does not file Tax Returns that it is or may be subject to
taxation by that jurisdiction;
(f) the Company does not have any liability for Taxes for (or
allocable to) any Tax year or period ending on or before the Closing Date that
has not been paid.
4.18 Severance Arrangements. Except as set forth in Disclosure Schedule
4.18, the Company has not entered into any severance or similar arrangement in
respect of any Personnel that will result in any obligation (absolute or
contingent) of the Buyer, the Company, the Surviving Corporation or any other
Person to make any payment to any such Personnel following termination of
employment.
4.19 Insurance. Disclosure Schedule 4.19 contains a complete and accurate
list of all policies or binders of fire, liability, title, worker's compensation
and other forms of insurance (showing as to each policy or binder the carrier,
policy number, coverage limits, expiration dates, annual premiums and a general
description of the type of coverage provided) maintained by the Company on its
business, Assets or Personnel. Except as set forth in Disclosure Schedule 4.19,
to the knowledge of the Stockholder and the Company all of such policies are
sufficient for compliance with all requirements of law and of all Contracts to
which
-28-
the Company is a party, except where the failure to comply could not reasonably
be expected to have a Company Material Adverse Effect. The Company is not in
default under any of such policies or binders, and the Company has not failed to
give any notice or to present any claim under any such policy or binder in a due
and timely fashion. Such policies and binders provide sufficient coverage, in
the reasonable opinion of the Company and the Stockholder, for the risks insured
against, are in full force and effect on the date hereof and shall be kept in
full force and effect by the Company through the Closing Date. Disclosure
Schedule 4.19 contains a complete and accurate list of all open or unresolved
claims made pursuant to any insurance policy maintained by the Company. As of
the Closing, the Company shall have made any and all claims that, to the
knowledge of the Company and of the Stockholder, it is entitled to make in
accordance with the terms of any insurance policy maintained by the Company.
4.20 Purchase Commitments. As of the date of this Agreement, all Contracts
or commitments for the purchase of Inventory by the Company were made in the
ordinary course of business consistent with past practice.
4.21 Suppliers. Disclosure Schedule 4.21 contains a complete and accurate
list of the ten largest suppliers of the Company during the Company's last
fiscal year, showing the approximate total purchases by the Company from each
such supplier during each of the last two fiscal years. To the best knowledge of
the Company and the Stockholder, since the Unaudited Balance Sheet Date, there
has been no adverse change in the business relationship with any supplier named
in Disclosure Schedule 4.21 and no threat or indication that any such change is
reasonably foreseeable.
4.22 Bank Accounts. Disclosure Schedule 4.22 contains a true and correct
list of the names of each bank, savings and loan, or other financial institution
in which the Company has an account, including cash contribution accounts, and
the names of all Persons authorized to draw thereon or with access thereto.
4.23 Environmental Matters. Except as set forth in Disclosure Schedule
4.23.1, the Company is, and at all times has been, in material compliance with
all Environmental Laws.
4.24.1 Delivery of Copies of Relevant Information. Disclosure Schedule
4.24.1 contains a complete list of Employee Plans that cover or, after December
31, 1993, have covered employees of the Company (with respect to their
relationship with the Company). True and complete copies of each of the
following documents have been delivered by the Company to the Buyer: (i) each
Welfare Plan, Pension Plan and Multiemployer Plan (and, if applicable, related
trust agreements) which covers or, after December 31, 1992, has covered
employees of the Company (with respect to their relationship with the Company)
and all amendments thereto, all written interpretations thereof and written
descriptions thereof which have been distributed generally to the Company's
employees and all annuity contracts or other funding instruments, (ii) each
Benefit Arrangement which covers or, after December 31, 1992, has covered
employees of the Company (with respect to their relationship with the Company)
including written interpretations thereof and written descriptions thereof which
have been
4.24 Employee Benefit Plans.
-29-
distributed generally to the Company's employees (including descriptions of the
number of employees currently covered thereby) and a complete description of any
such Benefit Arrangement which is not in writing, (iii) the most recent
determination letter issued by the Internal Revenue Service on each Pension Plan
which is intended to be tax-qualified pursuant to Section 401 of the Code, (iv)
for the three most recent plan years, Annual Reports on Form 5500 Series
required to be filed with any governmental agency for each Pension Plan which
covers or, after December 31, 1992, has covered employees of the Company (with
respect to their relationship with the Company) (v) a description of complete
age, salary, service and related data as of the last day of the last plan year
for employees and former employees of the Company, and (vi) a description
setting forth the amount of any liability of the Company as of the Closing Date
for payments more than thirty days past due with respect to each Welfare Plan
which covers or, after December 31, 1992, has covered employees or former
employees of the Company.
4.24.2 Representations. Except as set forth in Disclosure
Schedule 4.24.2, the Company represents as follows:
(i) In General. Each Employee Plan, each related trust
agreement, annuity contract or other funding instrument which covers or, after
December 31, 1992, has covered employees or former employees of the Company
(with respect to their relationship with the Company) presently complies and has
been maintained in compliance with its terms and, both as to form and in
operation, with the requirements prescribed by any and all statutes, orders,
rules and regulations which are applicable to such plans, including, but not
limited to, ERISA and the Code.
(ii) Pension Plans. Each Pension Plan and each related
trust agreement, annuity contract or other funding instrument which covers or,
after December 31, 1992, has covered employees or former employees of the
Company (with respect to their relationship with the Company) is qualified and
tax-exempt under the provisions of Code Sections 401(a) (or 403(a), as
appropriate) and 501(a) and has been so qualified during the period from its
adoption to date. No Pension Plan is subject to Sections 412 of the Code or 302
of ERISA.
(iii) Multiemployer Plans. There are no Multiemployer
Plans.
(iv) Welfare Plans.
(1) None of the Company, any ERISA Affiliate or
any Welfare Plan has any present or future obligation to make any payment to or
with respect to any present or former employee of the Company or any ERISA
Affiliate pursuant to any retiree medical benefit plan, or other retiree Welfare
Plan, and no condition exists which would prevent the Company from amending or
terminating any such benefit plan or Welfare Plan except as may be required by
Part 6 of Title I of ERISA.
(2) Each Welfare Plan which covers or has covered
employees or former employees of the Company and which is a "group health plan,"
as
-30-
defined in Section 607(l) of ERISA, has been operated in compliance with the
provisions of Part 6 of Title I of ERISA and Section 4980B of the Code and
Proposed Regulations under Section 162 of the Code at all times.
(v) Employment. Except as set forth on Disclosure Schedule 4.24.2,
and except as provided by law, the employment of all persons presently employed
or retained by the Company is terminable at will.
(vi) Unrelated Business Taxable Income. No Employee Plan (or trust
or other funding vehicle pursuant thereto) is subject to any Tax under Code
Section 511.
(vii) Deductibility of Payments. There is no contract, agreement,
plan or arrangement covering any employee or former employee of the Company
(with respect to their relationship with the Company) or any other person that,
individually or collectively, has provided or may provide for the payment by the
Company of any amount (1) that is not deductible under Section 162(a)(1), 162(m)
or 404 of the Code or (2) that is an "excess parachute payment" pursuant to
Section 280G of the Code.
(viii) Foreign Subsidiaries and Employees. There are no Subsidiaries
organized under the laws of or doing business in any country other than the
United States, and none of the Employee Plans which covers any employee or
former employee of the Company covers any person who is employed in any country
other than the United States.
(ix) Fiduciary Duties and Prohibited Transactions. None of the
Company or any plan fiduciary of any Welfare Plan or Pension Plan which covers
or has covered employees or former employees of the Company or any ERISA
Affiliate has engaged in any transaction in violation of Sections 404 or 406 of
ERISA or any "prohibited transaction," as defined in Section 4975(c)(1) of the
Code, for which no exemption exists under Section 408 of ERISA or Section
4975(c)(2) or (d) of the Code.
(x) Litigation. None of the Company, any ERISA Affiliate, or any
Employee Plan that covers or has covered employees or former employees of the
Company (with respect to their relationship with the Company) is a party to any
litigation relating to or seeking benefits under any Employee Plan.
(xi) No Amendments. Neither the Company nor any ERISA Affiliate has
any announced plan or legally binding commitment to create any additional
Employee Plans which are intended to cover employees or former employees of the
Company (with respect to their relationship with the Company) or to amend or
modify any existing Employee Plan which covers or has covered employees or
former employees of the Company (with respect to their relationship with the
Company).
(xii) Coal Industry Retiree Health Benefits. Neither the Company nor
any ERISA Affiliate has any liability, directly or indirectly, contingent or
otherwise, under Code Sections 9701 through 9722 or with respect to the "United
Mine Workers of America Combined Benefit Fund", established under Code Section
9702, any "individual employer
-31-
4.25 No Brokers. The Company does not and will not have any obligation to
pay any finder's fee, brokerage commission or similar payment in connection with
the transactions contemplated hereby. Any such fee payable by any Stockholder is
solely the obligation of such Stockholder.
4.26 No Other Agreements to Sell the Assets or Capital Stock of the
Company. Neither the Company nor the Stockholder has any legal obligation,
absolute or contingent, to any other Person to sell or effect a sale of the
capital stock of the Company (except as set forth in Disclosure Schedule 4.1) or
to effect any merger, consolidation or the reorganization of the Company or to
enter into any agreement or cause the entering into of an agreement with respect
thereto, other than as set forth herein.
4.27 Material Misstatements Or Omissions. No representations or warranties
by the Company or the Stockholder in this Agreement, nor any document, exhibit,
statement, certificate or schedule furnished or to be furnished to the Buyer
pursuant hereto, or in connection with the transactions contemplated hereby,
contains or will contain any untrue statement of a material fact, or omits or
will omit to state any material fact necessary to make the statements or facts
contained therein not misleading.
4.28 Investments. The Company does not own or have the right to acquire,
directly or indirectly, any interest or investment (whether equity or debt) in
any corporation, partnership, joint venture, business, trust or entity, other
than (i) non-controlling investments made in the ordinary course of business and
corporate partnering, development, cooperative marketing and similar
undertakings and arrangements entered into in the ordinary course of business,
and (ii) other investments of less than $10,000 in the aggregate.
4.29 Insider Interests. Disclosure Schedule 4.29 sets forth all material
contracts, agreements with and other obligations to officers, directors,
employees or shareholders of the Company and their affiliates. Except as set
forth in Disclosure Schedule 4.29, no officer, director or shareholder of the
Company, and no entity controlled by any such officer, director or shareholder,
and no relative or spouse who resides with any such officer, director or plan",
described in Code Section 9711, or the "1992 UMWA Benefit Plan", established
under Code Section 9712.
(xiii) Insurance Contracts. No Employee Plan holds as an asset any
interest in any annuity contract, guaranteed investment contract or any other
investment or insurance contract issued by an insurance company that is the
subject of bankruptcy, conservatorship or rehabilitation proceedings.
(xiv) No Other Material Liabilities. No event has occurred in
connection with which the Company or any ERISA Affiliate or any Employee Plan,
directly or indirectly, could be subject to any material liability (1) under any
statute, regulation or governmental order relating to any Employee Plan or (2)
pursuant to any obligation of the Company to indemnify any person against
liability incurred under, any such statute, regulation or order as they relate
to the Employee Plans.
-32-
shareholder (i) owns, directly or indirectly, any material interest in any
Person that is or is engaged in business, other than on an arm's-length basis,
as a competitor, lessor, lessee, customer or supplier of the Company or (ii)
owns, in whole or in part, any tangible or intangible property that the Company
uses in the conduct of its business.
4.30 Securities matters. Each Stockholder is acquiring the Buyer Shares
for investment purposes, solely for his or her own account and not as a nominee
or agent for any other person and not with a view to, or for offer or sale in
connection with, any distribution thereof within the meaning of the Securities
Act of 1933, as amended (the "Act"), that would be in violation of the
securities laws of the United States of America or any state thereof, without
prejudice, however, to such Stockholder's right at all times to sell or
otherwise dispose of all or any part of the Buyer Shares pursuant to an
effective registration statement under the Act or pursuant to an exemption from
the registration requirements of the Act.
IT IS ACKNOWLEDGED BY THE STOCKHOLDER THAT:
THE STOCKHOLDER HAS GIVEN AND HIS REPRESENTATIVE(S) HAVE BEEN GIVEN THE
OPPORTUNITY TO ASK QUESTIONS OF, AND RECEIVE ANSWERS FROM, THE BUYER OR
PERSON(S) ACTING ON ITS BEHALF CONCERNING THE TERMS AND CONDITIONS OF THIS
TRANSACTION, AND TO OBTAIN ANY ADDITIONAL INFORMATION WHICH THE BUYER POSSESSES
OR CAN ACQUIRE WITHOUT UNREASONABLE EFFORT OR EXPENSE THAT IS NECESSARY FOR THE
STOCKHOLDER TO MAKE AN INVESTMENT DECISION WITH RESPECT TO THE BUYER.
THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION HAS NOT PASSED UPON THE
MERITS OF OR GIVEN ITS APPROVAL TO THIS TRANSACTION OR THE BUYER'S SHARES. THE
BUYER'S SHARES ARE OFFERED PURSUANT TO AN EXEMPTION FROM REGISTRATION.
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer hereby represents and warrants to the Stockholder as follows:
5.1 Organization of Buyer and Mergeco. The Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Florida. Mergeco is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Florida.
5.2 Authorization. The Buyer has all necessary corporate power and
authority and has taken all corporate action necessary to execute and deliver
this Agreement, to consummate the transactions contemplated hereby and to
perform its and Mergeco's obligations hereunder, and no other proceedings on the
part of the Buyer or Mergeco are necessary to authorize this
-33-
Agreement and the transactions contemplated hereby. This Agreement has been duly
executed and delivered by the Buyer and Mergeco and is a legal, valid and
binding obligation of the Buyer and Mergeco enforceable against them in
accordance with its terms, except as may be limited by (i) bankruptcy,
insolvency, moratorium, reorganization and other similar laws affecting
creditors' rights generally and (ii) the general principles of equity,
regardless of whether asserted in a proceeding in equity or at law.
5.3 No Conflict or Violation. Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby will
result in (a) a violation of or a conflict with any provision of the Certificate
or Articles of Incorporation or bylaws of the Buyer or Mergeco, (b) a breach of,
or a default under, any term or provision of any contract, agreement,
indebtedness, lease, commitment, license, franchise, permit, authorization or
concession to which the Buyer or Mergeco is a party, which breach or default
could reasonably be expected to have a Company Material Adverse Effect on the
business or financial condition of the Buyer or Mergeco or its ability to
consummate the transactions contemplated hereby or (c) a violation by the Buyer
or Mergeco of any statute, rule, regulation, ordinance, code, order, judgment,
writ, injunction, decree or award, which violation could reasonably be expected
to have a Company Material Adverse Effect on the business or financial condition
of the Buyer or Mergeco, or its ability to consummate the transactions
contemplated hereby.
5.4 Consents and Approvals. Except as set forth on Disclosure Schedule
5.4, no notice to, declaration, filing or registration with, or authorization,
consent or approval of, or permit from, any domestic or foreign governmental or
regulatory body or authority, or any other person or entity, is required to be
made or obtained by the Buyer or Mergeco in connection with the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby.
5.5 Disclosure Documents. Buyer has delivered or Stockholder has had the
opportunity to obtain and review Buyer's Form 10-KSB for the year ending
December 31, 2001, Forms 10-QSB for the period ending June 30, 2002 and current
Forms 8-K (the "Buyer Disclosure Documents"). The Buyer Disclosure Documents are
true and correct in all material respects and do not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in light of the circumstances under which
such statements were made, not misleading. To the knowledge of Buyer nothing has
occurred after the date of the documents contained in the Disclosure Documents
that would individually or in the aggregate have a Buyer Material Adverse
Effect.
5.6 Capitalization. The authorized capital stock of Buyer consists of
40,000,000 shares of Common Stock, no par value per share, which as of September
30, 2002, approximately 8,800,000 shares are issued and outstanding. All of the
Buyer Shares are, and all shares of Buyer Shares to be issued pursuant to this
Agreement will be, validly issued, fully paid and non-assessable.
5.7 Litigation. Except as set forth in Disclosure Schedule 5.7, there is
no charge, complaint, action, order, writ, injunction, judgment or decree
outstanding or claim, suit,
-34-
litigation, proceeding, labor dispute, arbitrable action or investigation
(collectively, "Actions") pending or, to the knowledge of the Buyer, threatened
against, relating to or affecting (i) the Buyer or its assets or the operation
of the business of the Buyer as currently operated and as proposed to be
operated, (ii) any Employee Plan of Buyer or any trust or other funding
instrument, fiduciary or administrator thereof or (iii) the transactions
contemplated by this Agreement, before or by any federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, any of which is reasonably expected to
result in a loss not covered by insurance in excess of $100,000 or reasonably
expected to have a Buyer Material Adverse Effect. To the knowledge of the Buyer,
the Buyer is not in default with respect to any judgment, order, writ,
injunction or decree of any court or governmental agency, and there are no
unsatisfied judgments against the Buyer or the business of the Buyer. Except as
set forth in Disclosure Schedule 5.7, each Action pending or, to the knowledge
of the Buyer, threatened (whether or not disclosed in Disclosure Schedule 5.7),
is covered by insurance of reputable and solvent insurance companies.
5.8 No Undisclosed Liabilities. Except as set forth in Disclosure
Schedule 5.8, to the knowledge of the Buyer, the Buyer has no liabilities or
obligations (absolute, accrued, contingent or otherwise) except (i) liabilities
that are reflected and reserved against on the Buyer's unaudited balance sheet
dated June 30, 2002 (the "Buyer Balance Sheet Date") that have not been paid or
discharged since the date thereof and (ii) liabilities incurred by the Buyer
since the Buyer Balance Sheet Date in the ordinary course of business consistent
with past practice (none of which relates to any breach of contract, breach of
warranty, tort, infringement or violation of law or arose out of any complaint,
action, suit or proceeding except those which individually or in the aggregate
could not have a Company Material Adverse Effect).
5.9 No Brokers. Any obligation to pay any finder's fee, brokerage
commission or similar payment in connection with the transactions contemplated
hereby is solely the obligation of the Buyer.
5.10 Material Misstatements Or Omissions. To the knowledge of Buyer, no
representations or warranties by the Buyer in this Agreement, nor any document,
exhibit, statement, certificate or schedule furnished or to be furnished to the
Stockholder pursuant hereto, or in connection with the transactions contemplated
hereby, contains or will contain any untrue statement of a material fact, or
omits or will omit to state any material fact necessary to make the statements
or facts contained therein not misleading.
ARTICLE 6 COVENANTS OF THE STOCKHOLDER, THE COMPANY, AND THE BUYER
The Stockholder, the Company and the Buyer covenant and agree with each
other as follows:
6.1 Further Assurances:
-35-
6.1.1 Upon the terms and subject to the conditions contained herein,
the parties agree, both before and after the Closing, (i) to use all
commercially reasonable efforts to take, or cause to be taken, all actions and
to do, or cause to be done, all things necessary, proper or advisable to
consummate and make effective the transactions contemplated by this Agreement,
including, without limitation, all actions necessary to satisfy the conditions
to Closing set forth in Article 7 and Article 8 hereof, (ii) to execute any
documents, instruments or conveyances of any kind which may be reasonably
necessary or advisable to carry out any of the transactions contemplated
hereunder, and (iii) to cooperate with each other in connection with the
foregoing. Without limiting the foregoing, the parties agree to use their
respective commercially reasonable best efforts (i) to obtain all necessary
waivers, consents and approvals from other parties to the Contracts and Leases;
provided, however, that neither party shall not be required to make any
payments, commence litigation or agree to modifications of the terms thereof in
order to obtain any such waivers, consents or approvals without the written
consent of the other party, (ii) to obtain all necessary Permits as are required
to be obtained under any Regulations, (iii) to defend all Actions challenging
this Agreement or the consummation of the transactions contemplated hereby, (iv)
to lift or rescind any injunction or restraining order or other court order
adversely affecting the ability of the parties to consummate the transactions
contemplated hereby, (v) to give all notices to, and make all registrations and
filings with third parties, including, without limitations, submissions of
information requested by governmental authorities and (vi) to fulfill all
conditions to this Agreement. The Buyer, Stockholder and the Company will
promptly commence all actions required under this Section 6.1.
6.1.2 The Stockholder and the Buyer agree to furnish or cause to be
furnished to each other, upon request, as promptly as practicable, such
information and assistance (including access to books and records) relating to
the Company as are reasonably necessary to respond to notices or audit requests,
for the preparation of any return with respect to Taxes or claims for refund,
and for the prosecution or defense of any claim, suit or proceeding relating to
any proposed adjustment with respect to Taxes.
6.2 Conduct of Business. From the date hereof through the Closing, the
Stockholder shall, except as contemplated by this Agreement, or as consented to
by the Buyer in writing, cause the Company to be operated in the ordinary course
and in accordance with past practice and will not take any action inconsistent
with this Agreement or with the consummation of the Closing. Without limiting
the generality of the foregoing, the Company shall not, and, with respect to the
Company, the Stockholder shall not, except as specifically contemplated by this
Agreement, as set forth in Disclosure Schedule 6.2, or as consented to by the
Buyer in writing:
(a) change or amend the Organizational Documents of the Company;
(b) enter into, extend, materially modify, terminate or renew any
Lease or any Contract, except modifications, extensions or renewals of Contracts
in the ordinary course of business;
-36-
(c) sell, assign, transfer, convey, lease, mortgage, pledge or
otherwise dispose of or encumber any of the Assets or any interests therein
except in the ordinary course of business and, without limiting the generality
of the foregoing, the Company will maintain, dispose of, and sell Inventory
consistent with past practices;
(d) incur any liability for Indebtedness for borrowed money, guarantee
the obligations of others, indemnify or agree to indemnify others or, except in
the ordinary course of business, incur any other liability;
(e) (i) take any action with respect to the grant of any bonus,
severance or termination pay (otherwise than pursuant to policies or agreements
of the Company in effect on the date hereof that are described on the Disclosure
Schedules) or with respect to any increase of benefits payable under its
severance or termination pay policies or agreements in effect on the date hereof
or increase in any manner the compensation or fringe benefits of any employee of
the Company or pay, any benefit not required by any existing Employee Plan or
policy, other than as set forth in Disclosure Schedule 6.2;
(ii) make any change in the key management structure of the
Company, including, without limitation, the hiring of additional officers or the
termination of existing officers;
(iii) adopt, enter into or amend any Employee Plan, agreement
(including, without limitation, any collective bargaining or employment
agreement), trust, fund or other arrangement for the benefit or welfare of any
employee, except for any such amendment as may be required to comply with
applicable regulations; or (iv) fail to maintain all Employee Plans in
accordance with applicable Regulations;
(f) acquire by merger or consolidation with, or merge or consolidate
with, or purchase substantially all of the assets of, or otherwise acquire any
material assets or business of, any corporation, partnership, association or
other business organization or division thereof or acquire any Subsidiary;
(g) willingly allow or permit to be done any act by which any of the
Insurance Policies may be suspended, impaired or canceled;
(h) enter into, renew, modify or revise any agreement or transaction
relating to the Company with any of its or their Affiliates;
(i) fail to maintain the Assets in substantially their current state
of repair, excepting normal wear and tear, or fail to replace (consistent with
the Company's past practice) inoperable, worn-out or obsolete or destroyed
Assets;
-37-
6.3 Records. The Company shall have prepared and made available (or, in the
case of a portion of a period ending on the Closing Date, will prepare and make
available before the Closing) to the Buyer all of the Company's books and
working papers that clearly demonstrate the income and activities of the Company
for any period or any portion of a period ending on or prior to the Closing
Date.
6.4 Access of the Buyer. The Company shall allow the Buyer, its counsel,
accountants, and other representatives, at Buyer's sole cost and expense, during
regular business hours to make such inspection of the Assets and to inspect and
make copies of Contracts, Books and Records or other information requested by
the Buyer and related to the
(j) make any loans or advances relating to the Company to any
partnership, firm, individual, or corporation, except for expenses incurred in
the ordinary course of business consistent with past practice;
(k) fail to comply in all material respects with all Regulations
applicable to the Company and the Assets;
(l) change any of the accounting methods or practices of the Company
as historically applied or make any new elections or change any existing
elections with respect to Taxes;
(m) intentionally do any other act which would cause any
representation or warranty of the Company or the Stockholder in this Agreement
to be or become untrue, or any covenant in this Agreement to be breached, in any
material respect;
(n) fail to use reasonable efforts consistent with past business
practice to (i) maintain theCompany so that the services of its officers,
employees, consultants and agents will remain available to it on and after the
Closing Date, (ii) maintain existing relationships with suppliers, customers and
others having business dealings with the Company and (iii) otherwise preserve
the goodwill of the business of the Company so that such relationships and
goodwill will be preserved on and after the Closing Date;
(o) enter into any agreement, or otherwise become obligated, to do any
action prohibited hereunder;
(p) except as set forth in Disclosure Schedule 6.2, declare, set aside
for payment, or pay any dividend or distribution in respect of any Capital Stock
of the Company, redeem, purchase or otherwise acquire any of the Company's
equity securities; or otherwise transfer any of the Assets to or on behalf of
any Stockholder of the Company or any Affiliate of the Company, including,
without limitation, any payment of principal of or interest on any debt owed to
any of the foregoing or any payment of a bonus, fee or other payment to any of
the foregoing as an employee of the Company; or
(q) fail to comply with all applicable filing, payment, withholding,
collection and record retention obligations under all applicable federal, state,
local or foreign Tax laws.
-38-
operation of the business of the Company, including historical financial
information concerning the business of the Company. The Company shall furnish to
the Buyer at Buyer's sole cost and expense, promptly upon request (i) all such
additional documents and information with respect to the affairs of the Company
relating to its business or (ii) access to Personnel and to the Company's
accountants and counsel as the Buyer or its counsel or accountants may from time
to time reasonably request and shall instruct such Personnel, accountants and
counsel to cooperate with the Buyer, and to provide such information as the
Buyer and such representatives may request, at Buyer's sole cost and expense, in
all cases only to the extent the foregoing relate to the subject matter of this
Agreement.
6.5 Environmental. Prior to the Closing, the Buyer shall have the right,
at its sole cost and expense, to (i) conduct tests of the soil surface or
subsurface waters and air quality at, in, on, beneath or about the Leased
Property and to conduct such other procedures as may be recommended by an
environmental consultant engaged by the Buyer based on its reasonable
professional judgment, in a manner consistent with good engineering practice,
(ii) inspect records, reports, permits, applications, monitoring results,
studies, correspondence data and any other information or documents relevant to
environmental conditions or environmental noncompliance; and (iii) inspect all
buildings and equipment at the properties of the Company, including, without
limitation, the visual inspection of the physical plant for asbestos-containing
construction materials; provided, however, that in each case, such tests and
inspections shall be conducted only (x) during regular business hours and (y) in
a matter that will not unduly interfere with the operation of the business of
the Company and/or the use of, access to or egress from the properties of the
Company.
6.6 Notification of Certain Matters. Between the date of this Agreement
and the Closing, the Company and/or the Stockholder, as applicable, shall give
prompt notice to the Buyer of (i) the occurrence, or failure to occur, of any
event which occurrence or failure would cause any representation or warranty
contained in this Agreement to be untrue or inaccurate in any material respect
any time from the date hereof to the Closing Date and (ii) any material failure
of the Company or any Affiliate, officer, director, employee, agent or
Stockholder of the Company to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder; and such disclosure
shall be deemed to cure any breach of a representation, warranty, covenant or
agreement or to satisfy any condition. During the same period, the Stockholder
and/or the Company shall promptly notify the Buyer of the occurrence of any
breach by the Stockholder or the Company of any covenant in this Article 6 or of
the occurrence of any event that may make the satisfaction of the conditions in
Article 8 impossible or unlikely, and Buyer shall promptly notify the
Stockholder or the Company of the occurrence of any such breach or event that
comes to their attention. Should any such fact or condition require any change
in any Disclosure Schedule if the Disclosure Schedule were dated the date of the
occurrence or discovery of any such fact or condition, the Stockholder will
promptly deliver to the Buyer a supplement to the Disclosure Schedule specifying
such change and such delivery shall be deemed to cure any breach of a
representation, warranty, covenant or agreement or to satisfy any condition.
Buyer shall not be required to Close if any such supplement to the Disclosure
Schedules or failure to satisfy a covenant, condition or agreement constitutes a
Company Material Adverse Effect.
-39-
6.7 No Mergers, Consolidations, Sale of Stock, Etc. None of the Company or
the Stockholder will, directly or indirectly, solicit any inquiries or proposals
or enter into or continue any discussions, negotiations or agreements relating
to the sale or exchange of the Company's capital stock or the merger of the
Company with, or any direct or indirect disposition of a significant amount of
the Assets or the business of the Company to, any person other than the Buyer or
its affiliates, or provide any assistance or any information to or otherwise
cooperate with any person in connection with any such inquiry, proposal or
transaction. In the event that the Company or any Stockholder, or any of their
respective Affiliates, receives an unsolicited offer for such a transaction or
obtains information that such an offer is likely to be made, the Company will
provide the Buyer with notice thereof as soon as practical after receipt,
including the identity of the prospective purchaser or soliciting party.
6.8 Landlord Consents. If (and only if) required by a Lease and requested
by the Buyer with respect to each Facility Lease, the Company shall assist the
Buyer in obtaining a consent for each such Lease prior to the Closing Date. In
addition, Buyer shall use its commercially reasonable best efforts to cooperate
with the Company in obtaining the consents and obtaining a full release of any
and all guarantees of Stockholder with regard to the Facility Leases. The Buyer
shall send requests for the consents in such manner as required by each Lease
and shall promptly thereafter provide the Company with copies of such requests
along with proof of mailing. The Buyer shall provide any landlord, at such
landlord's written request, with the Buyer's financial statements, provided the
landlord covenants in writing to keep the information in such financial
statements confidential.
6.9 Payment of Indebtedness by Affiliates. Each Stockholder will cause all
Indebtedness owed to the Company by such Stockholder or any other Affiliate of
such Stockholder to be paid in full on or prior to Closing.
6.10 Approval of Shareholders. At Closing, the Company and Stockholder
shall deliver a Joint Written Consent of the Company's Board of Directors and
the Stockholder approving and adopting the Merger and all other actions
contemplated by this Agreement which require approval and adoption by the
Company's shareholders and/or Board of Directors.
6.11 Certificates of Merger. Subject to the terms and conditions of this
Agreement, the Company shall, and Buyer shall cause Mergeco to, cause the
Articles of Merger to be prepared and properly executed and filed with the
Secretary of State of Florida on the Closing Date.
6.12 Excluded Assets. Buyer acknowledges and agrees that Stockholder shall
withdraw the Excluded Assets from the Company and that such Excluded Assets
shall not be Assets of the Company for purposes of the transactions contemplated
in this Agreement.
-40-
ARTICLE 7 CONDITIONS TO THE STOCKHOLDER'S OBLIGATIONS
The obligations of the Stockholder to consummate the transactions provided
for hereby are subject to the satisfaction, on or prior to the Closing Date, of
each of the following conditions, any of which may be waived by the Stockholder
in accordance with Section 10.6 hereof:
7.1 Representations, Warranties and Covenants. All representations and
warranties of the Buyer contained in this Agreement shall be true and correct in
all material respects (except with respect to representations and warranties
which are qualified as to materiality or Material Adverse Effect, which
representations and warranties shall be true and correct) as of the date of this
Agreement and as of the Closing Date as though made on the Closing Date, and the
Buyer shall have performed all agreements and covenants required hereby to be
performed by it prior to or at the Closing Date.
7.2 No Injunction. No injunction or restraining order shall be in effect
prohibiting the transactions contemplated hereby.
7.3 Certificates. The Buyer will furnish the Stockholder with such
certificates of its officers and others to evidence compliance with the
conditions set forth in this Article 7 as may be reasonably requested by the
Stockholder.
7.4 Corporate Documents. The Stockholder shall have received from the
Buyer resolutions adopted by the board of directors of the Buyer approving this
Agreement and the transactions contemplated hereby, certified by the Buyer's
corporate secretary.
7.5 Employment Agreement. At the Closing, the Buyer shall have entered
into and Employment Agreement with ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, M.D. in the form attached
hereto as Exhibit D.
7.6 Releases of Personal Guarantees. Releases for all personal guarantees
as set forth in Section 6.9 of the Disclosure Schedule shall have been executed,
or the Buyer shall have provided indemnification to the Stockholder with respect
to all such personal guarantees.
7.7 Due Diligence. Stockholder shall be satisfied in his sole discretion,
with the results of his due diligence investigation of the Buyer.
ARTICLE 8 CONDITIONS TO THE BUYER'S OBLIGATION
The obligations of the Buyer to consummate any of the transactions provided
for hereby are subject to the satisfaction, on or prior to the Closing Date, of
each of the following conditions, each of which may be waived by the Buyer in
accordance with Section 10.6 hereof:
-41-
8.1 Representations, Warranties and Covenants. All representations and
warranties of each of the Company and the Stockholder contained in this
Agreement shall be true and correct in all material respects (except with
respect to representations and warranties which are qualified as to materiality
or Company Material Adverse Effect, which representations and warranties shall
be true and correct) as of the date of this Agreement and (except with respect
to and to the extent of actions expressly permitted under Article 6 hereof) as
of the Closing Date as though made on the Closing Date, and the Company and the
Stockholder shall have performed all agreements and covenants required hereby to
be performed by any of them prior to or at the Closing Date.
8.2 No Governmental Proceedings or Litigation. No Action by any
governmental authority or other person shall have been instituted for the
purpose of enjoining or preventing the transactions contemplated by this
Agreement, that (i) questions the validity or legality of the transactions
contemplated hereby, (ii) could reasonably be expected to have a Company
Material Adverse Effect, or (iii) seeks to enjoin consummation of the
transactions contemplated hereby or could reasonably be expected to cause any of
the transaction contemplated by this Agreement to be rescinded following
consummation.
8.3 Due Diligence and Audit. Buyer shall be satisfied, in its sole
discretion, with the results of its due diligence examination of the Company
and, if required, the completion of a satisfactory audit of the Company by
Buyer's certified public accountants and the rendering by such accountants of an
unqualified audit opinion letter.
8.4 No Injunction. No Injunction or restraining order shall be in effect
prohibiting the transactions contemplated hereby.
8.5 Certificates. The Stockholder will have furnished the Buyer with such
certificates of the officers of the Company and others to evidence compliance
with the conditions set forth in this Article 8 as may be reasonably requested
by the Buyer.
8.6 Liens. If and as requested by Buyer, all liens upon any of the Assets
shall have been terminated and released
8.7 401(k) Plan. The Company shall have taken all action necessary to
terminate the 401(k) Plan in compliance with applicable law and such
terminations shall have no adverse effect on the Company or the Buyer.
8.8 Resignation of Officers and Directors and Release. Each officer and
director of the Company designated by Buyer shall have resigned from such
position and the Stockholder shall have executed the General Release in the form
attached hereto as Exhibit "E".
-42-
ARTICLE 9 ACTIONS BY THE STOCKHOLDERS AND THE BUYER AFTER THE CLOSING
9.1 Books and Records. The Stockholder and the Buyer agree that each will
cooperate with and make available to the other party, during normal business
hours, all Books and Records, information and Personnel (without substantial
disruption of employment) retained and remaining in existence after the Closing
Date that are related to the business of the Company and that are necessary or
useful in connection with any tax inquiry, audit, investigation or dispute, any
litigation or investigation or any other matter requiring any such Books and
Records, information or Personnel for any reasonable business purpose. The party
requesting any such Books and Records, information or Personnel shall bear all
of the out-of-pocket costs and expenses (including, without limitation,
attorneys' fees, but excluding reimbursement for salaries and employee benefits)
reasonably incurred in connection with providing such Books and Records,
information or Personnel.
9.2 Survival of Representations, Etc. All of the representations and
warranties made by each party in this Agreement or in any attachment, Exhibit,
Disclosure Schedule, certificate, document or list attached to this Agreement
shall survive the Closing for the period ending four (4) years after the Closing
(and claims based upon or arising out of such representations and warranties may
be asserted at any time before such date). Each party hereto shall be entitled
to rely upon the representations and warranties of the other party set forth in
this Agreement. The termination of the representations and warranties provided
herein shall not affect the rights of a party in respect of any Claim made by
such party in a writing received by the other party prior to the expiration of
the applicable survival period provided herein.
9.3 Indemnification.
9.3.1 By the Stockholder.
(i) The Stockholder shall indemnify, save and hold harmless the
Buyer, its Affiliates and Subsidiaries, and its Representatives, from and
against any and all Damages incurred in connection with, arising out of,
resulting from or incident to:
(A) any breach of any representation or warranty or the
inaccuracy of any representation, made by the Company or any
Stockholder in or pursuant to this Agreement;
(B) any breach of any covenant or agreement made by the
Company or the Stockholder in or pursuant to this Agreement
which survives the Closing as provided herein;
(C) any matter or occurrence arising from or out of the
Company, its business and/or its operations prior to the Closing
Date;
-43-
(D) any willful misconduct or grossly negligent act or
omission of Stockholder; and
(E) all Taxes of the Company with respect to any Tax year or
portion thereof ending on or before the Closing Date (and for
any Tax year beginning before and ending after the Closing Date,
for the portion of such year ending on the Closing Date),
including Taxes of any Person for which the Company may be
liable under Reg. 1.1502-6 (or any similar provision of state,
local, or foreign law), as a transferee or successor, by
contract, or otherwise.
(ii) All payments to be made pursuant to this Section 9.3.1
shall be paid promptly by the Stockholder after the resolution of any dispute
between the Stockholder and Buyer regarding the extent and amount of such
indemnification.
9.3.2 By the Buyer. The Buyer shall indemnify, save and hold harmless
the Stockholder and his Representatives from and against any and all Damages
incurred in connection with, arising out of, resulting from, or incident to (i)
any breach of any representation or warranty or the inaccuracy of any
representation, made by the Buyer in or pursuant to this Agreement, and (ii) any
breach of any covenant or agreement made by the Buyer in or pursuant to this
Agreement which by its terms survives the Closing.
9.3.3 Defense of Claims. If a claim for Damages (an "Indemnity Claim")
is to be made by a party entitled to indemnification hereunder against the
indemnifying party, the party claiming such indemnification shall, subject to
Section 9.2 hereof, give written notice (a "Claim Notice") to the indemnifying
party as soon as practicable after the party entitled to indemnification becomes
aware of any fact, condition or event which may give rise to Damages for which
indemnification may be sought under this Section 9.3. If any lawsuit or
enforcement action is filed against any party entitled to the benefit of
indemnity hereunder, written notice thereof shall be given to the indemnifying
party as promptly as practicable (and in any event within 15 calendar days after
the service of the citation or summons). The failure of any indemnified party to
give timely notice hereunder shall not affect rights to indemnification
hereunder, except to the extent that the indemnifying party demonstrates actual
prejudice caused by such failure. After such notice, the indemnified party
against which such claim has been asserted will (upon delivering notice to such
effect to the indemnifying party) have the right to undertake, at the
indemnifying party's cost and expense, the defense, compromise or settlement of
such claim on behalf of and for the account and risk of the indemnifying party,
provided that the indemnifying party shall have the opportunity to advise and
comment on the Indemnity Claim. The indemnified party will keep the indemnifying
party reasonably informed of the progress of any such defense, compromise or
settlement. Provided that the indemnifying party shall consent to any settlement
or compromise, the indemnifying party shall be liable for any settlement of any
action effected pursuant to and in accordance with this Section 9.3 and for any
final judgment (subject to any right of appeal), and the indemnifying party
agrees to indemnify and hold harmless an indemnified party from and against any
Damages by reason of such settlement or judgment.
-44-
The obligations and liabilities of the parties hereto with respect to their
respective indemnities pursuant to this Section 9.3 resulting from any Claim
shall be subject to the following additional terms and conditions:
(i) The indemnifying party shall have the right to undertake,
by counsel or other representatives of its own choosing, the defense or
opposition to such Claim.
(ii) In the event that the indemnifying party shall elect not
to undertake such defense or opposition, or within ten (10) days after notice of
any such Claim from the indemnified party shall fail to defend or oppose, the
indemnified party (upon further written notice to the indemnifying party) shall
have the right to undertake the defense, opposition, compromise or settlement of
such Claim, by counsel or other representatives of its own choosing, on behalf
of and for the account and risk of the indemnifying party (subject to the right
of the indemnifying party to assume defense of or opposition to such Claim at
any time prior to settlement, compromise or final determination thereof).
(iii) Anything in this Section 9.3.3 to the contrary
notwithstanding: (a) the indemnified party shall have the right, at its own cost
and expense, to participate in the defense, opposition, compromise or settlement
of the Claim; (b) the indemnifying party shall not, without the indemnified
party's written consent, settle or compromise any Claim or consent to entry of
any judgment which does not include as an unconditional term thereof the giving
by the claimant or the plaintiff to the indemnified party of a release from all
liability in respect of such Claim; and (c) in the event that the indemnifying
party undertakes defense of or opposition to any Claim, the indemnified party,
by counsel or other representative of its own choosing and at its sole cost and
expense, shall have the right to consult with the indemnifying party and its
counsel or other representatives concerning such Claim and the indemnifying
party and the indemnified party and their respective counsel or other
representatives shall cooperate in good faith with respect to such Claim.
9.3.4 Brokers and Finders. Pursuant to the provisions of this Section
9.3, each of the Buyer and the Stockholder shall indemnify, hold harmless and
defend the other party from the payment of any and all broker's and finder's
expenses, commissions, fees or other forms of compensation which may be due or
payable from or by the indemnifying party (and in the case of the Stockholder,
if due or payable from or by the Company), or may have been earned by any third
party acting on behalf of the indemnifying party in connection with the
negotiation and execution hereof and the consummation of the transactions
contemplated hereby.
9.3.5 Representatives. No individual Representative of any party shall
be personally liable for any Damages under the provisions contained in this
Section 9.3. Nothing herein shall relieve either party of any liability to make
any payment expressly required to be made by such party pursuant to this
Agreement.
9.3.6 Damages. As used in this Section 9.3, the term "Damages" shall
mean any and all costs, losses (including, without limitation, diminution in
value), Taxes, liabilities,
-45-
obligations, damages, lawsuits, deficiencies, claims, demands, and expenses
(whether or not arising out of third-party claims), including, without
limitation, interest, penalties, costs of mitigation, reasonable attorneys' fees
and all amounts paid in investigation, defense or settlement of any of the
foregoing. The term "Damages" as used in this Section 9.3 is not limited to
matters asserted by third parties against the Stockholder or the Buyer, but
includes Damages incurred or sustained by the Stockholder or the Buyer in the
absence of third-party claims. Payments by the Buyer of amounts for which the
Buyer is indemnified hereunder, and payments by the Stockholder of amounts for
which the Stockholder is indemnified hereunder, shall not be a condition
precedent to recovery.
9.3.7 Materiality. The parties recognize that many of the
representations, warranties and covenants set forth in this Agreement are
qualified by the term "material". For purposes of this Agreement, the parties
hereby agree that a "material" event(s) has occurred if the impact of such
event(s) has resulted or is reasonably likely to result in costs, expenses
and/or damages for any event(s) singularly or in the aggregate in excess of One
Hundred Thousand Dollars ($100,000.00).
9.3.8 Payments. The parties hereby agree that any payment with respect
to any indemnity required pursuant to this Section 9.3 may be offset against any
payments otherwise due by the indemnified party to the indemnifying party.
Stockholder may, in his sole discretion, satisfy any claim for indemnification
hereunder, in whole or in part, with the Buyer Shares. For purposes of
satisfying such claims, the Buyer Shares shall be valued at $1.00 per share.
9.3.9 Limitation. The parties agree that the indemnification
provisions set forth in this Article shall be limited to all Claims in excess of
One Hundred Thousand Dollars ($100,000.00) (the "Threshold"). Once a Claim
exceeds the Threshold, if a party is entitled to indemnification under this
Section 9.3, such party shall recover all appropriate funds, as provided in this
Section 9.3 after reduction for the Threshold. Further, the indemnitors shall
not be liable for any liabilities resulting from Claims that are covered by any
insurance policy or other indemnity or contribution agreement unless, and only
to the extent that, the full limit of such insurance policy, indemnity or
contribution agreement has been exceeded. The party entitled to indemnification
shall have a duty to mitigate its damages. Notwithstanding the foregoing, a
party's obligation to indemnify under Section 9.3 shall be limited to
$4,000,000.
9.4 Certain Tax Matters. The following provisions shall govern the
allocation of responsibility as between the Buyer and the Company on the one
hand and the Stockholder on the other hand for certain tax matters following the
Closing:
(a) For any Tax years ending on or before the Closing Date, the
Stockholders shall prepare or cause to be prepared all Tax Returns for the
Company which are required to (or pursuant to an extension may) be filed after
the Closing Date. Subject to the requirements of applicable law, each such Tax
Return shall be prepared in a manner consistent with the Company's past
practices. Each income Tax Return of the Company shall be submitted to the Buyer
at least 30 days prior to the due date (including any extension thereof)
-46-
for filing such Tax Returns, and the Stockholder shall permit the Buyer to make
comments on each such Tax Return prior to the filing thereof. The Stockholder
shall file timely or cause to be filed timely such Tax Returns. The Buyer agrees
that it will consent to an election of the Company to close its books for
federal tax purposes as of the Closing Date, in accordance with Section
1362(e)(3) of the Internal Revenue Code of 1986, as amended, and that the "S
short year" of the Company (as such term is defined in Code Section 1362(e))
ending on the Closing Date will be considered a Tax year ending on the Closing
Date for purposes of this Section 9.4. The Company and the Stockholder agree
that they will consent to an election pursuant to Section 338(h)(10) of the Code
by filing Form 8023 such that the Company shall be treated as having sold all of
its assets at the Effective Date at fair market value in a single transaction
and shall be treated as a new corporation which purchased all of such assets as
of the beginning of the day after the Effective Date.
(b) The Buyer, the Company, and the Stockholder shall cooperate
fully, as and to the extent reasonably requested by the other party, in
connection with the filing of Tax Returns pursuant to this Section 9.4 and any
audit, litigation or other proceeding with respect to Taxes. Such cooperation
shall include provision of appropriate powers of attorney or similar
authorizations, the retention and (upon the other party's request) the provision
of records and information which are reasonably relevant to any such audit,
litigation or other proceeding and making employees available on a mutually
convenient basis to provide additional information and explanation of any
material provided hereunder. The Buyer shall retain all books and records with
respect to Tax matters pertinent to the Company relating to any tax periods and
shall abide by all record retention agreements entered into with any taxing
authority, and shall give the Stockholder reasonable written notice prior to
transferring, destroying or discarding any such book and records prior to the
expiration of the applicable statute of limitations for that tax period, and if
the Stockholder so request in the event of any proposed destruction or
discarding of the books and records, the Buyer shall allow the Stockholder to
take possession of such books and records. The Buyer and the Stockholder shall,
upon request, use their best efforts to obtain any certificate or other document
from any governmental authority or any other Person as may be necessary to
mitigate, reduce or eliminate any Tax that could be imposed (including, but not
limited to, with respect to the transactions contemplated hereby). Each party
shall pay its own expenses incurred in complying with this Section 9.4(b).
(c) The Stockholder shall, at her expense, be entitled to
control any Tax audit of the Company to the extent such audit affects or may
affect the amount or character of income, gain or loss includible by the
Stockholder for periods or portions thereof ending on or before the Closing
Date. The Buyer shall control all Tax audit issues of the Company that the
Stockholder is not entitled, or does not elect, to control.
-47-
ARTICLE 10 MISCELLANEOUS
10.1 Termination.
10.1.1 Termination. This Agreement may be terminated at any time
prior to Closing:
(i) By mutual written consent of the Buyer and the
Stockholder;
(ii) By the Buyer or the Stockholder if the Closing shall
not have occurred on or before January 2, 2003;
(iii) By the Buyer if there is a breach of any representation
or warranty set forth in Article 4 hereof or any covenant or agreement to be
complied with or performed by the Company or the Stockholder pursuant to the
terms of this Agreement which breach constitutes a Company Material Adverse
Effect, or the failure of a condition set forth in Article 8 to be satisfied
(and such condition is not waived in writing by the Buyer) on or prior to the
Closing Date; provided, however, that the Buyer may not terminate this Agreement
prior to the Closing if the Stockholder has not had an adequate opportunity to
cure such failure; or
(iv) By the Stockholder if there is a breach of any
representation or warranty set forth in Article 5 hereof or of any covenant or
agreement to be complied with or performed by the Buyer pursuant to the terms of
this Agreement which breach constitutes a Buyer Material Adverse Effect or the
failure of a condition set forth in Article 7 to be satisfied (and such
condition is not waived in writing by the Stockholder) on or prior to the
Closing Date, provided, however, that the Stockholder may not terminate this
Agreement prior to the Closing Date if the Buyer has not had an adequate
opportunity to cure such failure.
10.1.2 In Event of Termination. In the event of termination of this
Agreement:
(i) each party will redeliver all documents, work papers
and other material of any other party relating to the transactions contemplated
hereby, whether so obtained before or after the execution hereof, to the party
furnishing the same;
(ii) no confidential information received by any party with
respect to the business of any other party or its Affiliates shall be disclosed
to any third party, unless required by law; and
(iii) In the event that this Agreement shall be terminated
pursuant to Section 10.1.1(i) hereof, all obligations of the parties hereto
under this Agreement shall terminate and there shall be no liability of any
party hereto to any other party and each party hereto shall bear its own
expenses incurred in connection with the negotiation, preparation, execution and
performance of this Agreement. The termination of this Agreement except
-48-
pursuant to Section 10.1.1(i) shall not affect the right of any party to bring
an action for breach of this Agreement.
10.2 Assignment. Neither this Agreement nor any of the rights or
obligations hereunder may be assigned by any party without the prior written
consent of the other parties; except that the Buyer may, without such consent,
assign all of such rights to any lender as collateral security and assign all
such rights and obligations to a wholly-owned subsidiary (or a partnership
controlled by the Buyer) or subsidiaries of the Buyer or to a successor in
interest to the Buyer which shall assume all obligations and liabilities of the
Buyer under this Agreement; provided, however, that no such assignment shall
release Buyer from its obligations hereunder. Subject to the foregoing, this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and permitted assigns, and no other person shall
have any right, benefit or obligation under this Agreement.
10.3 Notices; Transfer of Funds. All notices, requests, demands and other
communications which are required or may be given under this Agreement shall be
in writing and shall be deemed to have been duly given when received if
personally delivered; when transmitted if transmitted by telecopy, electronic or
digital transmission method; the day after it is sent, if sent for next day
delivery to a domestic address by recognized overnight delivery service; and
upon receipt, if sent by certified or registered mail, return receipt requested.
In each case notice shall be sent to:
If to the Buyer: PainCare Holdings, Inc.
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇., ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, CEO
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Stockholder: ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇., ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Company: Pain and Rehabilitation Network, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇., ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
or to such other place and with such other copies as any party may designate as
to itself by written notice to the others.
10.4 Choice of Law. This Agreement shall be construed, interpreted and the
rights of the parties determined in accordance with the internal laws of the
State of Florida without reference to its choice of law provisions, except with
respect to matters of law concerning the internal corporate affairs of any
corporate entity which is a party to or the subject of this
-49-
Agreement, and as to those matters the law of the jurisdiction under which the
respective entity derives its powers shall govern.
10.5 Submission to Jurisdiction. Each party to this Agreement hereby
submits to exclusive jurisdiction of any state or federal court within Orange
County, Florida for purposes of all legal proceedings arising out of or relating
to this Agreement or the transactions contemplated hereby. Each party to this
Agreement hereby irrevocably waives, to the fullest extent permitted by law, any
objections which it may now or hereafter have to the laying of the venue of any
such proceeding brought in such a court and any claim that any such proceeding
brought in such a court has been brought in an inconvenient forum.
10.6 Entire Agreement, Amendments and Waivers. This Agreement, together
with all Exhibits and schedules hereto (including the Disclosure Schedules),
constitutes the entire agreement among the parties pertaining to the subject
matter hereof and supersedes all prior agreements, understandings, negotiations
and discussions, whether oral or written, of the parties. This Agreement may not
be amended except by an instrument in writing signed on behalf of each of the
parties hereto. No amendment, supplement, modification or waiver of this
Agreement shall be binding unless executed in writing by the party to be bound
thereby. No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provision hereof (whether or not
similar), nor shall such waiver constitute a continuing waiver unless otherwise
expressly provided.
10.7 Multiple Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which,
together, shall constitute one and the same instrument.
10.8 Expenses. Except as otherwise specified in this Agreement, each party
hereto shall pay its own legal, accounting, out-of-pocket and other expenses
incident to this Agreement and to any action taken by such party in preparation
for carrying this Agreement into effect.
10.9 Invalidity. In the event that any one or more of the provisions
contained in this Agreement or in any other instrument referred to herein,
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, then to the maximum extent permitted by law, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement or any other such instrument.
10.10 Titles; Gender. The titles, captions or headings of the Articles and
Sections herein, and the use of a particular gender, are for convenience of
reference only and are not intended to be a part of or to affect the meaning or
interpretation of this Agreement.
10.11 Publicity. The Buyer in consultation with and following notice to
Stockholder, may issue or make an appropriate press release or public
announcement after the execution and delivery of this Agreement. Except as
required by law, neither the Company nor any Stockholder may issue any press
release or make any public statement regarding the transactions contemplated
hereby, without the prior approval of the other parties.
-50-
10.12 Burden and Benefit. This Agreement shall be binding upon and shall
inure to the benefit of, the parties hereto and their respective successors and
permitted assigns. There are no third party beneficiaries of this Agreement.
10.13 Cumulative Remedies. All rights and remedies of either party hereto
are cumulative of each other and of every other right or remedy such party may
otherwise have in equity or at law, and the exercise of one or more rights or
remedies shall not prejudice or impair the concurrent or subsequent exercise of
other rights or remedies.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed on their respective behalf, by their respective officers thereunto
duly authorized, all as of the day and year first above written.
"BUYER"
PAINCARE HOLDINGS, INC.
By /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
--------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Title: CEO
MERGECO"
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
-------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Title: CEO
"STOCKHOLDER"
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
"COMPANY"
PAIN AND REHABILITATION NETWORK, INC.
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
-------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇, M.D., President
-51-
