EXECUTION COPY
STOCK PURCHASE AGREEMENT
BY AND AMONG
SAFEGUARD HEALTH ENTERPRISES, INC.
(AS BUYER)
AND
T.R.C. AGENCY, INC.
(THE COMPANY)
AND
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, D.D.S.,
AND
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, D.D.S.,
(AS SELLING SHAREHOLDERS)
DATED AS OF AUGUST 9, 1996
TABLE OF CONTENTS
ARTICLE I TRANSFER OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.1 Sale of Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.2 Purchase Price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.3 Payment of Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
1.4 Shareholders to Deliver Title and Possession. . . . . . . . . . . . . . . . . . .2
1.5 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS . . . . . .2
2.1 Organization and Qualification. . . . . . . . . . . . . . . . . . . . . . . . . .2
2.2 Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
2.3 Voting Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
2.4 Authority Relative to this Agreement. . . . . . . . . . . . . . . . . . . . . . .3
2.5 No Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
2.6 Absence of Certain Changes. . . . . . . . . . . . . . . . . . . . . . . . . . . .4
2.7 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
2.8 Absence of Undisclosed Liabilities. . . . . . . . . . . . . . . . . . . . . . . .4
2.9 Consents and Approvals; No Violation. . . . . . . . . . . . . . . . . . . . . . .5
2.10 Broker's Commissions or Finder's Fees. . . . . . . . . . . . . . . . . . . . . .5
2.11 Employment and Similar Agreements. . . . . . . . . . . . . . . . . . . . . . . .6
2.12 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
2.13 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
2.14 ERISA Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
2.15 Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
2.16 Commission Arrangements and Sales. . . . . . . . . . . . . . . . . . . . . . . .10
2.17 Customer List. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
2.18 Interests in Competitors . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
2.19 Properties, Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
2.20 Real Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
2.21 Permits; Compliance with Laws. . . . . . . . . . . . . . . . . . . . . . . . . .11
2.22 Insurance Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
2.23 Environmental Liability. . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
2.24 Banking Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
2.25 Minute Books and Stock Records.. . . . . . . . . . . . . . . . . . . . . . . . .12
2.26 Consents of Non-Governmental Third Parties . . . . . . . . . . . . . . . . . . .12
2.27 Accounts Receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
2.28 Trademarks; Tradenames . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
2.29 Probable Success . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
2.30 Transactions with Related Parties. . . . . . . . . . . . . . . . . . . . . . . .12
2.31 Compliance with Insurance Laws . . . . . . . . . . . . . . . . . . . . . . . . .13
2.32 Full Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
2.33 Representations and Warranties True. . . . . . . . . . . . . . . . . . . . . . .13
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Stock Purchase Agreement
TRC Agency
OA962220.090
ARTICLE III REPRESENTATIONS AND WARRANTIES OF BUYER. . . . . . . . . . . . . . . . . . . .14
3.1 Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
3.2 Authority Relative to this Agreement. . . . . . . . . . . . . . . . . . . . . . .14
3.3 Consent and Approvals; No Violation . . . . . . . . . . . . . . . . . . . . . . .14
3.4 Broker's Commissions or Finder's Fees . . . . . . . . . . . . . . . . . . . . . .15
3.5 Investment Intent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
3.6 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
ARTICLE IV CONDUCT OF BUSINESS BY THE COMPANY PRIOR TO CLOSING . . . . . . . . . . . . . .15
4.1 Ordinary Course . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
4.2 Dividends; Changes in Stock . . . . . . . . . . . . . . . . . . . . . . . . . . .15
4.3 Issuance or Repurchase of Securities. . . . . . . . . . . . . . . . . . . . . . .15
4.4 Governing Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
4.5 No Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
4.6 No Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
4.7 No Dispositions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
4.8 Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
4.9 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
4.10 Benefit Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
4.11 Additional Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
ARTICLE V ADDITIONAL COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
5.1 Confidential Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
(a) Nondisclosure by Shareholders. . . . . . . . . . . . . . . . . . . . . . . .18
(b) Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
(c) Nondisclosure by Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . .19
(d) Return of Information. . . . . . . . . . . . . . . . . . . . . . . . . . . .19
5.2 Governmental Filings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
5.3 Legal Conditions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
5.4 Certain Defaults. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
5.5 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
5.6 Access to Information and Diligence Review. . . . . . . . . . . . . . . . . . . .20
5.7 Additional Actions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
5.8 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
5.9 Further Conveyances, Assurances and Cooperation . . . . . . . . . . . . . . . . .24
ARTICLE VI CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PARTIES. . . . . . . . . . . . . . .25
6.1 Conditions to the Obligations of Buyer, the Company and the Shareholders. . . . .25
(a) Governmental Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . .25
(b) Legal Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
(c) Statutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
(d) Financing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
(e) Satisfaction of American Dental Conditions . . . . . . . . . . . . . . . . .25
6.2 Further Conditions to the Obligations of Buyer. . . . . . . . . . . . . . . . . .26
(a) Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . .26
(b) Performance of Obligations of Other Parties. . . . . . . . . . . . . . . . .26
(c) No Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
(d) No Adverse Change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
(e) Spousal Consent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
(f) Third-Party Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . .26
(g) Resignations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
(h) Board and Shareholder Approval . . . . . . . . . . . . . . . . . . . . . . .26
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(i) Financial Statements Audit . . . . . . . . . . . . . . . . . . . . . . . . .26
(j) Financial Results. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
(k) Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
(l) Agreement Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . .27
(m) Employment Arrangements. . . . . . . . . . . . . . . . . . . . . . . . . . .27
(n) Payment and Release of Liens . . . . . . . . . . . . . . . . . . . . . . . .27
6.3 Further Conditions to the Obligations of the Company and the Shareholders . . . .27
(a) Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . .27
(b) Performance of Obligations of Other Parties. . . . . . . . . . . . . . . . .28
(c) Third-Party Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . .28
ARTICLE VII TERMINATION, EXTENSION AND WAIVER. . . . . . . . . . . . . . . . . . . . . . .28
7.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28
(a) By Mutual Consent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28
(b) By Any Party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28
(c) By Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28
(d) By the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29
7.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29
7.3 Extension; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29
ARTICLE VIII INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29
8.1 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29
(a) Indemnification by the Shareholders. . . . . . . . . . . . . . . . . . . . .29
(b) Indemnification by Buyer . . . . . . . . . . . . . . . . . . . . . . . . . .30
(c) Definition of Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
8.2 Third Party Claims Notice and Opportunity to Settle . . . . . . . . . . . . . . .31
8.3 Right to Offset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
8.4 Non-Third Party Claims. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
8.5 Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
ARTICLE IX DISPUTE RESOLUTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
9.1 Notice. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
9.2 Arbitrator. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34
9.3 Pre-Hearing Conference. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34
9.4 Discovery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34
9.5 Briefs and Hearing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34
9.6 Decision. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34
9.7 Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35
ARTICLE X GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35
10.1 Survival of Representations and Warranties . . . . . . . . . . . . . . . . . . .35
10.2 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35
10.3 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36
10.4 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36
10.5 Integration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36
10.6 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36
10.7 Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36
10.8 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36
10.9 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36
10.10 Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
10.11 Transfer Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is entered into as of
August 9, 1996, by and among SAFEGUARD HEALTH ENTERPRISES, INC., a Delaware
corporation ("Buyer"), and T.R.C. AGENCY, INC., a Texas corporation (the
"Company"), and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, D.D.S. ("▇▇. ▇▇▇▇▇▇▇▇▇") and ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇, D.D.S. ("▇▇. ▇▇▇▇▇▇"), the beneficial and record owners of all of the
outstanding capital stock of the Company (each, a "Shareholder" and
collectively, the "Shareholders").
RECITALS
WHEREAS, the Shareholders own all of the issued and outstanding shares
of capital stock (the "Shares") of the Company;
WHEREAS, the Shareholders desire to sell to Buyer, and Buyer desires
to purchase from the Shareholders, the Shares of the Company on the terms and
conditions set forth herein;
WHEREAS, the Shareholders are also party to that certain Stock
Purchase Agreement (the "American Stock Purchase Agreement") by and among First
American Dental Benefits, Inc. ("American Dental"), the Shareholders, ▇▇▇▇▇▇▇ ▇.
▇▇▇▇, ▇▇. and Buyer dated August 9, 1996; and
WHEREAS, the sale of the Company and American Dental are to occur
simultaneously, with each as a condition precedent to the other.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
ARTICLE I
TRANSFER OF SHARES
1.1 SALE OF SHARES. Subject to the terms and conditions set forth
herein, at the Closing (as defined herein), the Shareholders shall sell,
transfer and deliver to Buyer, and Buyer shall purchase and acquire from the
Shareholders, all of the Shares of the Company, free and clear of any claims,
liens, pledges, options, encumbrances, security interests, trusts or other
rights or interests of any person.
1.2 PURCHASE PRICE. The aggregate purchase price to be paid by Buyer
for the Shares of the Company, in the manner provided in SECTION 1.3, will equal
Eight Million Dollars ($8,000,000) (the "Purchase Price").
Stock Purchase Agreement
TRC Agency
OA962220.090
1.3 PAYMENT OF PURCHASE PRICE. The Purchase Price shall be paid by
Buyer to Shareholders in equal amounts at the Closing.
1.4 SHAREHOLDERS TO DELIVER TITLE AND POSSESSION. At the Closing,
the Shareholders shall deliver to Buyer endorsed share certificates or executed
stock powers and other good and sufficient instruments of transfer as Buyer may
reasonably require to vest effectively in Buyer good and valid title to the
Shares of the Company, free and clear of any claims, liens, pledges, options,
security interests, trusts, encumbrances or other rights or interests of any
person, in accordance with the terms hereof.
1.5 CLOSING. The consummation of the transactions contemplated by
this Agreement (the "Closing") shall take place on August 30, 1996, or on the
fifth (5th) business day following the date on which all conditions precedent to
the obligations of the parties hereunder and under the American Stock Purchase
Agreement have been satisfied or waived, whichever is the later to occur (the
"Closing Date"), at the offices of ▇▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP, Jamboree Center,
▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ or at such other date, time
and place as may be mutually agreed upon in writing by the parties. All
proceedings to take place at the Closing shall take place simultaneously, and no
delivery shall be considered to have been made until all such proceedings have
been completed.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE SHAREHOLDERS
The Company, ▇▇. ▇▇▇▇▇▇▇▇▇ and ▇▇. ▇▇▇▇▇▇ jointly and severally
represent and warrant (except with respect to the representations and warranties
set forth in Sections 2.2 and 2.3, the last sentence of Section 2.4, and the
second sentence of Section 2.13(f), which are made by each such Shareholder
severally and not jointly) to Buyer as follows:
2.1 ORGANIZATION AND QUALIFICATION. The Company is a corporation
duly organized, validly existing and in good standing in the State of Texas, is
duly qualified to do business as a foreign corporation and is in good standing
in each jurisdiction in which the character of its properties or the nature of
its business makes such qualification necessary, except in jurisdictions, if
any, where the failure to be so qualified (a) would not result in a Material
Adverse Change (as defined below) or (b) would not result in a breach of any of
the other representations, warranties or covenants set forth in this Agreement.
The Company has the requisite corporate power and authority to own, use or lease
its properties and to carry on its business as it is now being conducted and as
it is now proposed to be conducted. The Company has made available to Buyer a
complete and correct copy of its Articles of Incorporation and Bylaws, each as
amended to date, and such Articles of Incorporation and Bylaws as so delivered
are in full force and effect. The Company is not in default in any material
respect in the performance, observation or fulfillment of any provision of its
Articles of Incorporation or Bylaws. For purposes of this Agreement, a
"Material Adverse Change" shall mean any event, circumstance, condition,
development or occurrence causing, resulting in or having a material adverse
effect on the financial condition, business, properties, prospects or results of
operations of the Company.
2
2.2 CAPITALIZATION. The authorized capital stock of the Company
consists solely of 100,000 shares of common stock, $1.00 par value, of which,
1,000 shares are issued and outstanding. The Shares of the Company are owned
beneficially and of record by the Shareholders as set forth on SCHEDULE 2.2,
free and clear of any claims, liens, pledges, options, security interests,
trusts, encumbrances or other rights or interests of any person. No agreement
or other document grants or imposes on any of the Shares of the Company any
right, preference, privilege or restriction with respect to the transaction
contemplated hereby (including, without limitation, any rights of first
refusal). All of the Shares of the Company have been duly authorized and
validly issued and are fully paid, nonassessable and free of preemptive rights
created by any agreement to which the Company is bound. The Shares have been
issued in full compliance with all federal and state securities laws. There are
no options, warrants or other rights, commitments or agreements of any character
that call for the issuance of shares of capital stock or other securities of the
Company or any securities, instruments or rights convertible into or
exchangeable for shares of capital stock or other securities of the Company.
The Shareholders have the absolute and unrestricted right, power, authority and
capacity to transfer the Shares of the Company to Buyer and upon the Closing,
without exception, Buyer will acquire from the Shareholders legal and beneficial
ownership of, good and valid title to, and all rights to vote, the Shares of the
Company, free from any charge, lien, encumbrance or adverse claim of any kind
whatsoever other than those that may arise by virtue of any actions (other than
the purchase of shares contemplated hereby), taken by or on behalf of Buyer or
its affiliates.
2.3 VOTING AGREEMENTS. Neither the Company nor any Shareholder is a
party to or subject to any proxy, agreement or understanding, nor is there, to
the knowledge of the Company and the Shareholders, any agreement or
understanding between any other persons, that affects or relates to the voting
or giving of written consents with respect to any security of the Company or the
voting by a director of the Company.
2.4 AUTHORITY RELATIVE TO THIS AGREEMENT. The Company has all
requisite corporate power and authority to execute and deliver this Agreement
and to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby on the part of the Company have been duly and validly authorized by its
Board of Directors and the Shareholders, and no other corporate proceedings on
the part of the Company is necessary, as a matter of law or otherwise, to
authorize this Agreement or to consummate the transactions so contemplated.
This Agreement has been duly and validly executed and delivered by the Company
and the Shareholders and, assuming this Agreement constitutes a valid and
binding obligation of Buyer, this Agreement constitutes a valid and binding
agreement of such persons or entities, enforceable against them in accordance
with its terms, except (a) as such enforcement may be subject to bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors' rights, and (b) as the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
2.5 NO SUBSIDIARIES. The Company does not control, directly or
indirectly, nor does it have any direct or indirect equity participation or
other interest in, any corporation, partnership, trust or other business entity.
3
2.6 ABSENCE OF CERTAIN CHANGES. Since May 31, 1996, the Company has
conducted its business only in, and has not engaged in any transaction other
than according to, the ordinary and usual course of its business and, since such
date, there has not been (a) any Material Adverse Change; (b) any declaration,
setting aside or payment of any dividend or other distribution with respect to
the capital stock of the Company; (c) any material change by the Company in
accounting principles, practices or methods; (d) any labor dispute or difficulty
which is reasonably likely to result in any Material Adverse Change, and to the
knowledge of each of the Company and the Shareholders, no such dispute or
difficulty is now threatened; (e) any material asset sold or disposed of (except
inventory sold in the ordinary course of business), any material asset
mortgaged, pledged or subjected to any lien, charge or other encumbrance;
(f) any increase in excess of $5,000 in the compensation payable or which could
become payable by the Company to its directors, officers, employees, agents,
distributors, dealers or sales representatives; (g) any amendment by the Company
of any employee benefit plan; (h) any issuance, transfer, sale or pledge by the
Company of any shares of stock or other securities or of any commitments,
options, rights or privileges under which the Company is or may become obligated
to issue any shares of stock or other securities; (i) any indebtedness incurred
by the Company, except such as may have been incurred in the ordinary course of
business and consistent with past practice; (j) any loan made or agreed to be
made by the Company, nor has the Company become liable or agreed to become
liable as a guarantor with respect to any loan; (k) any waiver or release by the
Company of any right of material value or any payment, direct or indirect, of
any material debt, liability or other obligation; (l) any change in or amendment
to the Articles of Incorporation or Bylaws of the Company; or (m) any other
event or condition that has or might reasonably result in a Material Adverse
Change.
2.7 FINANCIAL STATEMENTS. The audited balance sheets of the Company
as of December 31, 1995 and the related statements of income and cash flow for
the twelve month periods then ended (collectively, the "1995 Financial
Statements") are attached hereto as SCHEDULE 2.7. The 1995 Financial Statements
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the period indicated (except as may be
noted therein) ("GAAP"), and present fairly the financial position of the
Company as of the end of such fiscal year and the results of operations and cash
flows for such fiscal year in conformity with GAAP. The interim audited
financial statements of the Company as of and for the six (6) months ended June
30, 1996 (also attached hereto as SCHEDULE 2.7) have been prepared in accordance
with GAAP consistent with the 1995 Financial Statements, and present fairly the
financial position of the Company as of the end of such period and the results
of operations and cash flows for such period in conformity with GAAP, except
that such interim financial statements may not contain all footnotes or other
textual disclosure required by GAAP and are subject to normal recurring year-end
audit adjustments. The interim financial statements for the six (6) months
ended June 30, 1996 are referred to herein as the "Interim Financial Statements"
and the l995 Financial Statements and Interim Financial Statements are
collectively referred to herein as the "Financial Statements."
2.8 ABSENCE OF UNDISCLOSED LIABILITIES.
(a) Except to the extent reserved against or reflected in the
balance sheet of the Company included in the Interim Financial Statements,
the Company does not
4
have any material liabilities or obligations (contingent or otherwise) that
are required by GAAP to be reflected therein, and since that date the
Company has not incurred any material liabilities or obligations that, had
they been incurred prior to June 30, 1996, would have been required by GAAP
to have been reflected in such balance sheets (except as may be noted
therein), except such liabilities or obligations incurred in the ordinary
and usual course of business and consistent with past practice.
(b) The Company will not be liable for prepayment or other
penalties in connection with the early retirement of any indebtedness for
borrowed money.
2.9 CONSENTS AND APPROVALS; NO VIOLATION. The execution and delivery
of this Agreement by the Company and the Shareholders, the consummation of the
transactions contemplated hereby and the performance by the Company and the
Shareholders of their obligations hereunder will not:
(a) conflict with any provision of the Articles of Incorporation
or Bylaws (or other similar charter documents) of the Company;
(b) require any consent, approval, authorization or permit of,
or filing with or notification to, any governmental or regulatory
authority, except (i) the Governmental Filings (as defined in SECTION 5.2)
(ii) compliance with any applicable requirements of the Securities Act of
1933; (iii) compliance with any applicable requirements of the Securities
Exchange Act of 1934; (iv) compliance with any applicable state securities
laws; and (v) where the failure to obtain such consents, approvals,
authorizations or permits or the failure to make such filings or
notifications would not result in a Material Adverse Change;
(c) conflict with, result in the breach of or constitute a
default (or give rise to any right of termination, cancellation or
acceleration or guaranteed payments) under any of the terms, conditions or
provisions of any note, lease, mortgage, license, agreement or other
instrument or obligation to which the Company or any of the Shareholders is
a party or by which the Company or any of its Shareholders or any of its
assets may be bound, except for such defaults (or rights of termination,
cancellation or acceleration) as to which requisite waivers or consents
have been obtained or which, in the aggregate, would not result in a
Material Adverse Change;
(d) conflict with or violate the provisions of any order, writ,
injunction, judgment, decree, statute, rule or regulation applicable to the
Company or any of the Shareholders; or
(e) result in the creation of any lien, charge or encumbrance
upon any shares of capital stock or assets of the Company under any
agreement or instrument to which the Company is a party or by which the
Company is bound.
2.10 BROKER'S COMMISSIONS OR FINDER'S FEES. The parties acknowledge
that the Company enlisted the services of ▇▇ ▇▇▇▇▇ ("Finder") to act for the
Company and the
5
Shareholders in connection with the transactions provided for in this Agreement.
The Company and the Shareholders shall be solely responsible for the payment of
all finder's fees or other similar fees or commissions due to Finder in
connection with this Agreement.
2.11 EMPLOYMENT AND SIMILAR AGREEMENTS. There are (a) no employment,
severance, bonus or indemnification arrangements, agreements, understandings or
plans between the Company and any director, officer or employee thereof except
those indemnification provisions set forth in the Articles of Incorporation and
Bylaws of the Company; (b) no agreements of the type described in (a) above
(i) providing benefits which are contingent, or the terms of which are altered,
upon the occurrence of a transaction involving the Company of the nature of any
of the transactions contemplated by this Agreement, (ii) providing any term of
employment or compensation guaranty not terminable at any time upon notice of
thirty (30) days or less or (iii) providing severance benefits or other benefits
(which are conditioned upon a change in control) after the termination of
employment of such employee, regardless of the reason for such termination of
employment; (c) no agreements or plans, any of the benefits of which will be
materially increased, or the vesting of benefits of which will be materially
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will be calculated on the
basis of any of the transactions contemplated by this Agreement; (d) subject to
general principles related to wrongful termination of employees, no officers or
employees of the Company whose employment is not terminable at the will of the
Company.
The Company (a) is not obligated to compensate any consultants
pursuant to any agreement or arrangement which is material to the Company;
(b) is not a party to, nor is it bound by, any collective bargaining agreement
or other labor agreement; (c) is not involved in any labor discussion with any
unit or group seeking to become the bargaining unit for any of its employees;
and (d) has not been notified by any such unit or group of an intention to
commence any organizational activities among the employees of the Company.
2.12 LITIGATION. Except as set forth on SCHEDULE 2.12, there is no
claim, action or proceeding pending or, to the knowledge of the Company or the
Shareholders, threatened against or relating to the Company before any court or
other competent governmental or regulatory authority or body acting in an
adjudicative capacity. To the knowledge of the Company and the Shareholders,
there is no reasonable basis for a claim, action or proceeding against or
relating to the Company which, if adversely determined, could, individually or
in the aggregate, reasonably be expected to result in a Material Adverse Change
with respect to the Company. Neither the Company nor any of its respective
officers, directors or employees, has been permanently or temporarily enjoined
by any order, judgment or decree of any court or any other governmental or
regulatory authority from engaging in or continuing any conduct or practice in
connection with the business, assets or properties of the Company nor, to the
knowledge of the Company or the Shareholders, is any officer, director or
employee of the Company under investigation by any governmental or regulatory
authority. Except as set forth on SCHEDULE 2.12, there is not in existence any
order, judgment or decree of any court or other tribunal or other agency
enjoining or requiring the Company to take any action of any kind with respect
to its business, assets or properties.
6
2.13 TAXES.
(a) DEFINITIONS. For purposes of this Agreement, the following
definitions shall apply:
(i) For purposes of this Section 2.13, the term "Company"
shall mean, collectively, the Company and any corporation, partnership or
other entity as to which the Company is liable for Taxes incurred by such
entity as a transferee, or pursuant to Treasury Regulations
Sections 1.1502-6, or pursuant to any other provision of federal, state,
local or foreign law or regulations.
(ii) The term "Tax" or "Taxes" shall mean all taxes,
however, denominated, including any interest, penalties or other additions
to tax that may become payable in respect thereof, imposed by any federal,
state, local or foreign government or any agency or political subdivision
of any such government, which taxes shall include, without limiting the
generality of the foregoing, all income or profits taxes (including, but
not limited to, federal income taxes and state income taxes), real property
gains taxes, payroll and employee withholding taxes, unemployment insurance
taxes, social security taxes, sales and use taxes, ad valorem taxes,
occupation taxes, real and personal property taxes, stamp taxes,
environmental taxes, transfer taxes, workers' compensation and other
governmental charges, and other obligations of the same or of a similar
nature to any of the foregoing, which the Company is required to pay,
withhold or collect.
(iii) The term "Tax Returns" shall mean all reports,
estimates, declarations of estimated tax, information statements and
returns, including any and all schedules or attachments thereto, relating
to, or required to be filed in connection with, any Taxes, including
information returns or reports with respect to backup withholding and other
payments to third parties.
(b) TAX RETURNS FILED AND TAXES PAID. Except as disclosed on
SCHEDULE 2.13, all Tax Returns required to be filed by or on behalf of the
Company have been duly filed on a timely basis and such Tax Returns are
true, complete and correct. All Taxes shown to be payable on the Tax
Returns or on subsequent assessments with respect thereto have been paid in
full on a timely basis and no other Taxes are payable by the Company with
respect to items or periods covered by such Tax Returns (whether or not
shown on or reportable on such Tax Returns) or with respect to any period
prior to the date of this Agreement. The Company has withheld and paid
over all Taxes required to have been withheld and paid over, and complied
with all information reporting and backup withholding requirements,
including maintenance of required records with respect thereto, in
connection with amounts paid or owing to any employee, creditor,
independent contractor, or other third party. There are no liens on any of
the assets of the Company with respect to Taxes, other than liens for Taxes
not yet due and payable or for Taxes that the Company is contesting in good
faith through appropriate proceedings and for which appropriate reserves
have been established.
7
(c) TAX RETURNS FURNISHED. Buyer has been furnished by the
Company true and complete copies of (i) all relevant portions of income tax
examination or audit reports, statements of deficiencies, closing or other
agreements received by the Company or on behalf of the Company relating to
Taxes, and (ii) all federal and state income or franchise tax returns for
the Company for all periods ending on and after January 1, 1991. The
Company has never been a member of an affiliated group filing consolidated
returns. The Company does no business in nor derives income from any
state, local or foreign taxing jurisdiction other than those for which all
Tax Returns have been furnished to Buyer.
(d) TAX DEFICIENCIES: AUDITS, STATUTES OF LIMITATIONS. Except
as specified in SCHEDULE 2.13, the Tax Returns of the Company have never
been audited by a government or taxing authority, nor is any such audit in
process, pending or threatened; no deficiencies exist or have been asserted
or are expected to be asserted with respect to Taxes of the Company, and
the Company has not received notice nor expects to receive notice that it
has not filed a Tax Return or paid Taxes required to be filed or paid by
it; the Company is neither a party to any action or proceeding for
assessment or collection of Taxes, nor has such event been asserted or
threatened against the Company or any of its assets; and no waiver or
extension of any statute of limitations is in effect with respect to Taxes
or Tax Returns of the Company.
(e) TAX SHARING AGREEMENTS. The Company is not (nor has it ever
been) a party to any tax sharing agreement and has not assumed the Tax
liability of any other person under contract.
(f) TAX ELECTIONS AND SPECIAL TAX STATUS.
(i) S CORPORATION DEFINED. As used herein the term "S
corporation" means, with respect to any specified period, a corporation
(A) that has in effect throughout such period a valid election under
Section 1362(a) of the Internal Revenue Code of 1986, as amended (the
"Code") to be an S corporation which is, and whose shareholders are,
subject to the tax treatment provided for under the provisions of
Sections 1361 ET SEQ. of the Code, and (B) that remains qualified
throughout such period to be, and is treated throughout such period as, an
S corporation which is, and whose shareholders are, subject to the tax
treatment provided for under Sections 1361 ET SEQ. of the Code.
(ii) S CORPORATION STATUS. The taxable year of the Company
for federal and state income tax purposes is the calendar year ending each
December 31. For the Company's taxable years prior to the 1994 year, for
federal tax purposes the Company was not an S corporation. For the 1994
and 1995 taxable years, and for the 1996 period through to the date of this
Agreement, the Company was and is an S corporation. For all periods with
respect to which the Company has been an S corporation, for federal tax
purposes the Company's Tax Returns have been prepared and filed on a basis
consistent with its status as an S corporation.
8
(iii) OTHER MATTERS. The Company is not nor has it ever
been a United States real property holding corporation within the meaning
of Section 897(c)(2) of the Code and Buyer is not required to withhold tax
on the purchase of the stock of Company by reason of Section 1445 of the
Code. No Shareholder is a "foreign person" (as that term is defined in
Section 1445 of the Code). The Company is not a "consenting corporation"
under Section 341(f) of the Code. The Company has not entered into any
compensatory agreements with respect to the performance of services which
payment thereunder would result in a nondeductible expense pursuant to
Section 280G of the Code or an excise tax to the recipient of such payment
pursuant to Section 4999 of the Code. The Company has not agreed, nor is
it required to make, any adjustment under Code Section 481(a) by reason of
a change in accounting method or otherwise.
(g) TAX BASIS AND TAX ATTRIBUTES. The disclosure schedules and
other books and records of the Company furnished to Buyer contain accurate
and complete descriptions of the Company's basis in its assets, current and
accumulated earnings and profits, tax carryovers, and tax elections. The
Company has no net operating losses or other tax attributes presently
subject to limitation under Code Sections 382, 383, or 384.
2.14 ERISA PLANS. There are no employee pension benefit plans,
programs, agreements or arrangements ("Plans") maintained or contributed to by
the Company which are subject to the Employee Retirement Income Security Act of
1974, as amended ("ERISA").
2.15 CONTRACTS. Set forth on SCHEDULE 2.15 is a true and complete
list of (a) each customer contract, whether written or oral, between each of the
Company and any party to whom the Company provides goods or services; and
(b) each contract, whether written or oral, between each of the Company and any
party to whom the Company is obligated to make any payments. The contracts and
agreements that are required to be identified in SCHEDULE 2.15 are hereinafter
referred to as the "Contracts." The Company has delivered to Buyer (i) with
respect to the agency contracts of the Company, a standard form of such
contract; and (ii) true and complete written summaries of each oral Contract.
The Company has made available to Buyer true and complete copies of each written
Contract. Except as set forth on SCHEDULE 2.15:
(i) Each of the Contracts is a valid, binding and enforceable
agreement of the Company and, to the knowledge of the Company and the
Shareholders, will, subject to the satisfaction of the conditions in
ARTICLE VI, continue to be valid, binding and enforceable immediately after
the Closing;
(ii) As of the date hereof, the Company and the Shareholders have
no reason to believe that the Company will not be able to fulfill in all
material respects all of its obligations under the Contracts that remain to
be performed after the date hereof;
(iii) To the knowledge of the Company and the Shareholders,
there has not occurred any material default (or event which upon provision
of notice or lapse of time or both would become such a default) under any
of the material Contracts on the part of the Company; and
9
(iv) The Contracts are all of the agreements, promissory notes,
contracts and instruments (except employment agreements, which are set
forth on SCHEDULE 2.11) that are material to the Company or its business.
2.16 COMMISSION ARRANGEMENTS AND SALES. Set forth on SCHEDULE 2.16
(such Schedule to be delivered at Closing) is a true and complete list of all of
the agents receiving commissions from the Company, together with summaries of
the commissions paid such agent during the past two (2) most recent calendar
years and through the Closing Date. None of such agents has given notice to the
Company of an intention to terminate or materially impair its business
relationship with the Company and neither the Company nor its Shareholders have
any knowledge of any event that would precipitate the impairment, cancellation
or termination of, or the failure to renew, or entitle any such agent to
terminate, such business relationship. The Company has paid all commissions due
to such agents other than commissions which become due and payable after the
Closing Date and for which the related revenues have been retained in American
Dental for their payment.
2.17 CUSTOMER LIST. The Company has taken all reasonable security
measures to protect the secrecy, confidentiality and value of its customer
lists. Employees and any other person who, either alone or in concert with
others, have knowledge of or access to the customer list, have been put on
notice and, if appropriate, have entered into agreements that the customer list
is proprietary and not to be divulged or misused.
2.18 INTERESTS IN COMPETITORS. Except as identified in SCHEDULE 2.18,
to the knowledge of the Company and the Shareholders, none of the Shareholders,
nor any employees, spouses or children of them, has any direct or indirect
interest in any competitor, supplier or customer of the Company or in any person
or firm from whom or to whom the Company leases any real or personal property,
or in any other person with whom the Company is doing business.
2.19 PROPERTIES, LIENS. Except for statutory liens (including
mechanics and materialmen's liens) and liens for current taxes not yet
delinquent, the Company owns, free and clear of any liens, claims, charges,
options or other encumbrances, all of its tangible and intangible property, real
and personal, whether or not reflected in the Interim Financial Statements
(except property sold or disposed of in the ordinary course of business since
December 31, 1995) and all such property acquired since such date that is
necessary to conduct its business as it is now being conducted, and to the
knowledge of the Company and the Shareholders, there has not been any violation
of any law, regulation or ordinance relating to its properties or its business
that may reasonably be expected to result in a Material Adverse Change. All
plants, structures, equipment, furniture and automobiles owned or leased by the
Company and material to the operation of its business are in satisfactory
condition (ordinary wear and tear excepted) and repair for the requirements of
its business as now being conducted. There are no proceedings affecting any of
such properties pending or, to the knowledge of the Company or the Shareholders,
threatened which may reasonably be expected to curtail, materially and
adversely, the use of such property for the purpose for which it was acquired or
the purpose for which it is now used.
2.20 REAL PROPERTY. There is no real property owned and/or leased by
the Company.
10
2.21 PERMITS; COMPLIANCE WITH LAWS. The Company has all necessary
franchises, authorizations, approvals, orders, consents, licenses, certificates,
permits, registrations, qualifications or other rights and privileges, including
without limitation certificates of authority from the Texas Department of
Insurance ("Certificates of Authority") (collectively "Permits"), necessary to
permit it to own its properties and to conduct its business as the same are
presently conducted and all such Permits are in full force and effect and valid.
No Permit is subject to termination as a result of the execution of this
Agreement or consummation of the transaction contemplated hereby. The Company
is in compliance with all applicable statutes, ordinances, orders, rules and
regulations promulgated by any federal, state, municipal or other governmental
authority which apply to the conduct of its business. Since January 1, 1992,
the Company has not ever entered into or been subject to any judgment, consent
decree, compliance order or administrative order with respect to any
environmental or health and safety law or received any request for information,
notice, demand letter, administrative or demand letter, administrative inquiry
or formal or informal complaint or claim with respect to any environmental or
health and safety matter or the enforcement of any such law.
2.22 INSURANCE POLICIES. Set forth on SCHEDULE 2.22 is a true and
correct list of all insurance policies of any nature whatsoever maintained by
the Company. Such policies are in full force and effect through the Closing
Date and, except as otherwise set forth on SCHEDULE 2.22, such policies, or
other policies covering the same risks, have been in full force and effect,
without gaps, continuously for the past five (5) years. Except as disclosed on
SCHEDULE 2.22, there are no claims pending under any of such policies. Copies
of all such policies have been made available to Buyer for its inspection.
2.23 ENVIRONMENTAL LIABILITY. The business of the Company has been
and is now operated in material compliance with all federal, state and local
environmental protection, occupational, health and safety or similar laws,
ordinances, restrictions, licenses, rules, regulations and permit conditions,
including, but not limited to, the Federal Water Pollution Control Act, Resource
Conservation & Recovery Act, Clean Air Act, Comprehensive Environmental
Response, Compensation and Liability Act, Emergency Planning and Community Right
to Know, and Occupational Safety and Health Act, each as amended ("Environmental
Laws").
2.24 BANKING FACILITIES. Set forth on SCHEDULE 2.24 is a true and
complete list of:
(a) Each bank, savings and loan or other institution in which
the Company has a deposit, custodial, trust or similar account or safety
deposit or lock box account and the numbers and types of the accounts or
safety deposit boxes maintained by the Company at such financial
institutions; and
(b) The names of all persons authorized to draw on each such
account or to have access to any such safety deposit or lock box facility,
together with a description of the authority (and conditions thereof, if
any) of each such person with respect thereto.
11
All of such bank accounts, bonds or other accounts required of an
insurance agency in Texas are adequate and in compliance with Texas law.
2.25 MINUTE BOOKS AND STOCK RECORDS. The Company has delivered or
made available to Buyer true, correct and complete copies of (a) the minute
books of the Company containing all records required to be set forth of all
proceedings, consents, actions, and meetings of the shareholders and Board of
Directors of the Company, including minutes of meetings for committees of the
Board; and (b) all stock record books of the Company setting forth all transfers
of capital stock.
2.26 CONSENTS OF NON-GOVERNMENTAL THIRD PARTIES. No material consent,
waiver or approval of any non-governmental third party is necessary for the
consummation by the Company or the Shareholders of the transactions contemplated
hereby.
2.27 ACCOUNTS RECEIVABLE. All accounts receivable of the Company
shown on the Interim Financial Statements and all accounts receivable of the
Company created after June 30, 1996 up to the date hereof arose from valid
transactions in the ordinary course of business and such accounts receivable are
(except to the extent of the reserves thereon) collectible in the ordinary
course of business.
2.28 TRADEMARKS; TRADENAMES. Except for the name of the Company and
the name "American Dental Group Agency, Inc.", the dba of the Company, there are
no trademarks, trade names, service marks or copyrights owned by the Company.
The Company has not infringed, nor is it now infringing, on any trade name,
trademark, service ▇▇▇▇, or copyright belonging to any other person, firm or
business. Except as set forth in the Contracts, the Company is not a party to
any license, agreement or arrangement, with respect to any trademarks,
servicemarks, trade names, or applications for them, or any copyrights. The
Shareholders covenant that they have not granted and will not grant to any other
person, firm or corporation the right to use the Company's name or dba, and will
not after the Closing use, such names as part of the corporate or firm name of
any other firm, entity, corporation or business. Notwithstanding the foregoing,
the use of the name "American Dental Network, Inc." shall remain the exclusive
property of American Dental Network, Inc. and ▇▇. ▇▇▇▇▇▇▇▇▇ and ▇▇. ▇▇▇▇▇▇ to be
used in connection with their national PPO business.
2.29 PROBABLE SUCCESS. No Shareholder makes any representations or
warranties to Buyer regarding the probable success or profitability of the
business of the Company, provided that the foregoing statement shall not limit
or modify any representation, warranty, covenant, or agreement of the Company or
the Shareholders in this Agreement or in any certificate, instrument, or
document delivered pursuant hereto or in connection herewith.
2.30 TRANSACTIONS WITH RELATED PARTIES. Except as set forth in
SCHEDULE 2.30 hereto, there are no loans, leases or other continuing
transactions between the Company and any present or former stockholder, director
or officer of the Company, or any member of such officer's, director's or
stockholder's immediate family, or any business organization controlled by such
officer, director or stockholder or his or her immediate family. Except as set
forth in SCHEDULE 2.30, no stockholder, director or officer of the Company, or
any of the respective
12
spouses or immediate family members, owns directly or indirectly on an
individual or joint basis any material interest in, or serves as an officer or
director or in another similar capacity of, any competitor or supplier of the
Company.
2.31 COMPLIANCE WITH INSURANCE LAWS. Without limiting the
representations and warranties contained elsewhere in this Agreement, except as
set forth in SCHEDULE 2.31:
(a) The Company has since January 1, 1992, made all reports
required under applicable insurance statutes. SCHEDULE 2.31 sets forth the
licenses held by the Company under all applicable insurance or other
similar laws. Other than the licenses listed in SCHEDULE 2.31, the Company
is not required to hold any other license, permit or authorization under
the insurance laws of any state other than the State of Texas to conduct
its business as presently conducted. The Company has all other necessary
Permits of and from all insurance regulatory authorities to conduct its
business as presently conducted.
(b) To the best of the Shareholders' knowledge, the dental plan
products offered and sold by the agents of the Company have been and are
offered and sold in compliance with the requirements of all relevant laws
and regulations, in each case. The Company has not received any
notification from any insurance regulatory authority to the effect that any
additional Permit is needed to be obtained by it. The Company has not
since January 1, 1992, ever, entered into or been subject to any judgment,
consent decree, compliance order or administrative order other than any
issued in the ordinary course of business with respect to any insurance or
other similar law or, other than in the ordinary course of business,
received any request for information, notice, demand letter, administrative
inquiry or formal or informal complaint or claim with respect to any
insurance or other similar law or the enforcement of any such law.
(c) Since January 1, 1992, the Company has not failed to comply
with any applicable statute, ordinance, order, rule or regulation, or
failed to obtain any Permit in the State of Texas, or, to the best
knowledge of the Shareholders, in any jurisdiction other than the State of
Texas in which the Company is conducting or has prior to the date hereof
conducted any activities.
2.32 FULL DISCLOSURE. None of the representations and warranties made
by the Company or the Shareholders, or made in any certificate or memorandum
furnished or to be furnished by any of them or on their behalf, contains or will
contain any untrue statement of a material fact, or omits to state any material
fact necessary to make the statements made, in the light of the circumstances
under which they were made, not misleading.
2.33 REPRESENTATIONS AND WARRANTIES TRUE. All representations and
warranties of the Company and the Shareholders set forth in this Agreement and
in any written statements delivered to Buyer by the Company or any Shareholder
will also be true and correct as of the Closing Date as if made on that date
(except to the extent such representations or warranties speak to a particular
date).
13
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF BUYER
Buyer represents and warrants to the Company and the Shareholders as
follows:
3.1 ORGANIZATION. Buyer is a corporation duly organized, validly
existing and in good standing in the State of Delaware, is duly qualified to do
business as a foreign corporation and is in good standing in the State of
California. Buyer has the requisite corporate power to own, use or lease its
properties and to carry on its business as it is now being conducted. Buyer has
made available to the Company a complete and correct copy of its Certificate of
Incorporation and Bylaws, each as amended to date, and Buyer's Certificate of
Incorporation and Bylaws as so delivered are in full force and effect. Buyer is
not in default in any material respect in the performance, observation or
fulfillment of any provision of its Certificate of Incorporation or Bylaws.
3.2 AUTHORITY RELATIVE TO THIS AGREEMENT. Buyer has all requisite
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby on
the part of Buyer have been duly and validly authorized by the Board of
Directors of Buyer, and no other corporate proceedings on the part of Buyer are
necessary, as a matter of law or otherwise, to authorize this agreement or to
consummate the transactions so contemplated. This Agreement has been duly and
validly executed and delivered by Buyer and, assuming this Agreement constitutes
a valid and binding obligation of the Company and the Shareholders, this
Agreement constitutes a valid and binding agreement of Buyer, enforceable
against it in accordance with its terms, except (a) as such enforcement may be
subject to bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights, and (b) as the
remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought.
3.3 CONSENT AND APPROVALS; NO VIOLATION. The execution and delivery
of this Agreement by Buyer, the consummation of the transactions contemplated
hereby and the performance by Buyer of its obligations hereunder, will not:
(a) conflict with any provision of the Certificate of
Incorporation or Bylaws of Buyer;
(b) require any consent, approval, authorization or permit of,
or filing with or notification to, any governmental or regulatory
authority, except (i) the filing of the Governmental Filings (as defined in
SECTION 5.2) and (ii) where the failure to obtain such consents, approvals,
authorizations or permits or the failure to make such filings or
notifications would not have a material adverse effect on the financial
condition, business, properties or results of operations of Buyer; or
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(c) conflict with or violate the provisions of any order, writ,
injunction, judgment, decree, statute, rule or regulation applicable to
Buyer, in such a manner as to result in a material adverse effect on the
financial condition, business, properties or results of operations of
Buyer.
3.4 BROKER'S COMMISSIONS OR FINDER'S FEES. No person or entity has
acted for Buyer in connection with the transactions provided for in this
Agreement in any way that would entitle such person to, and no person or entity
is entitled to, receive from Buyer any broker's commissions or finder's fees (or
other similar fees or commissions) in connection with this Agreement.
3.5 INVESTMENT INTENT. Buyer is acquiring the Shares for its own
account for investment and not with a view to, or for sale or other disposition
in connection with, any distribution of all or any part thereof, except in
compliance with applicable federal and state securities laws.
3.6 LEGAL PROCEEDINGS. There are no legal proceedings pending or, to
the best knowledge of Buyer, threatened seeking to restrain, prohibit, or obtain
damages or other relief in connection with this Agreement or the transactions
contemplated hereby.
ARTICLE IV
CONDUCT OF BUSINESS
BY THE COMPANY PRIOR TO CLOSING
From the date of this Agreement and until the Closing Date or the
earlier termination of this Agreement, the Company and Shareholders agree
(except as expressly contemplated by this Agreement or to the extent that Buyer
shall otherwise consent in writing) as follows:
4.1 ORDINARY COURSE. The Company shall carry on its business in the
usual, regular and ordinary course, in substantially the same manner as
heretofore conducted, and shall use all reasonable efforts consistent with past
practice and policies to preserve intact its present business organization, keep
available the services of its present agents and preserve its relationships with
customers and others having business dealings with it to the end that its
goodwill and ongoing business shall be unimpaired at the Closing Date. The
Company will not adopt any method of accounting that is inconsistent with
generally accepted accounting principles.
4.2 DIVIDENDS; CHANGES IN STOCK. The Company shall not (a) declare
or pay any dividends on or make other distributions in respect of any Shares, or
(b) split, combine or reclassify any Shares or issue or authorize the issuance
of any other securities in respect of, in lieu of or in substitution for any
Shares.
4.3 ISSUANCE OR REPURCHASE OF SECURITIES. Except as otherwise
expressly contemplated by this Agreement, the Company shall not issue, pledge,
deliver, sell, or repurchase any shares of its capital stock of any class, or
any options, warrants or other rights exercisable for or securities convertible
into or exchangeable for, any such shares.
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4.4 GOVERNING DOCUMENTS. The Company shall not adopt any amendment
to its Articles of Incorporation or Bylaws.
4.5 NO SOLICITATION.
(a) Until the closing of the transaction contemplated hereby or
until this Agreement is terminated, neither the Company nor any Shareholder
shall directly or indirectly, nor shall any such party authorize or permit
any director, officer, employee, stockholder, investment banker, finder,
attorney, accountant or other agent or representative to, solicit or
encourage submission of any proposal or offer, or participate or cooperate
in any discussions or negotiations, or enter into any letter of intent,
agreement in principle or other agreement, oral or written, concerning any
merger, sale of substantial assets, business combination, joint venture,
sale or purchase of shares of capital stock or similar transaction
involving the Company (any such proposal or offer being hereinafter
referred to as an "Acquisition Proposal").
(b) The Company and the Shareholders shall promptly notify Buyer
in writing if any such Acquisition Proposal is made, and shall in any such
notice, set forth in reasonable detail the identity of the third party, the
terms and conditions of any such Proposal and any other information
requested of it by the third party or in connection therewith.
(c) If (i) Section 4.5(a) of this Agreement is breached, and
(ii) on or before July 31, 1997, either the Company and/or the Shareholders
consummate an Acquisition Proposal, then the Company and its Shareholders
shall pay Buyer a break-up fee in the aggregate amount of Five Hundred
Thousand Dollars ($500,000), less any amounts paid under the American Stock
Purchase Agreement for a breach of the analogous Section in such Agreement,
and reimburse Buyer for any and all reasonable expenses incurred by it in
connection with the transactions contemplated hereby. The Company and each
of the Shareholders shall be jointly and severally liable for the payment
of any such fee.
4.6 NO ACQUISITIONS. The Company shall not acquire or agree to
acquire by merging or consolidating with, or by purchasing a substantial portion
of the assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof or
otherwise acquire or agree to acquire any capital or other assets which are
material, individually or in the aggregate, to the Company.
4.7 NO DISPOSITIONS. Except for the sale of inventory in the
ordinary course of business and other than pursuant to the requirements of
existing Contracts, the Company shall not sell, lease or otherwise dispose of
any assets which are material, individually or in the aggregate, to the Company.
16
4.8 INDEBTEDNESS.
(a) The Company shall not incur, become subject to, or agree to
incur or become subject to, any obligation or liability (absolute or
contingent), except current liabilities incurred, and obligations under
contracts entered into, in the ordinary course of business consistent with
prior practice, and provided specifically that the Company shall not enter
into any material lease or extension of any material lease with respect to
any real or personal property or issue or sell, or guaranty the repayment
of; any debt securities.
(b) The Company shall not pay or be liable for prepayment or
other penalties in connection with the early retirement of any of the
Company's indebtedness for borrowed money.
4.9 EMPLOYEES. Except as expressly contemplated by this Agreement,
the Company shall not make any change in the compensation payable, or to become
payable, to any of its officers, directors, employees, agents or consultants,
enter into or amend any employment, severance, termination or other agreement;
make any loans to any of its officers, directors, employees agents or
consultants; or make any change in its existing borrowing or lending
arrangements for or on behalf of any of such persons, whether contingent on
consummation of the transactions contemplated by this Agreement or otherwise.
4.10 BENEFIT PLANS. The Company shall not (a) pay, agree to pay or
make any accrual or arrangement for payment of any pension, retirement allowance
or other employee benefit pursuant to any existing plan, agreement or
arrangement to any officer, director or employee except in the ordinary course
of business and consistent with past practice or as permitted by this Agreement;
(b) pay or agree to pay or make any accrual or arrangement for payment to any
employees of the Company of any amount relating to unused vacation days;
(c) commit itself to adopt or pay, grant, issue or accrue salary or benefits
pursuant to any additional pension, profit-sharing, bonus, extra compensation,
incentive, deferred compensation, stock purchase, stock option, stock
appreciation right, group insurance, severance pay, retirement or other employee
benefit plan, agreement or arrangement, or any employment or consulting
agreement with or for the benefit of any director, officer, employee, agent or
consultant, whether past or present; or (d) amend in any material respect any
such existing plan, agreement or arrangement.
4.11 ADDITIONAL MATTERS. The Company shall not:
(a) enter into, amend or terminate any agreements, commitments
or contracts which, individually or in the aggregate, are material to the
financial condition or results of operations of the Company;
(b) discharge or satisfy any lien or encumbrance or payment of
any obligation or liability (absolute or contingent) other than current
liabilities in the ordinary course of business;
17
(c) cancel or agree to cancel any material debts or claims,
except in each case in the ordinary course of business;
(d) waive any rights of substantial value;
(e) otherwise make any material change in the conduct of the
business or operations of the Company;
(f) settle any tax assessment, litigation or other claims,
relinquish any material contract right or make any equity investments in
third parties; or
(g) agree in writing or otherwise to take any of the foregoing
actions or any action which would constitute a Material Adverse Change or
make any of the representations and warranties of the Company set forth in
this Agreement untrue or incorrect in any material respect.
ARTICLE V
ADDITIONAL COVENANTS
5.1 CONFIDENTIAL INFORMATION.
(a) NONDISCLOSURE BY SHAREHOLDERS. The Shareholders recognize
and acknowledge that they have in the past, currently have, and in the
future may possibly have, access to certain confidential information of the
Company, such as customer lists, specific information relating to the
special needs of particular customers (including knowledge of what products
they are using and are likely to use in the future), sales and financial
records and related data (including pricing information), information and
specifications relating to products proposed by the Company, knowledge of
the Company's sales and marketing techniques, and information regarding
vendors and suppliers of the Company. Each of the Shareholders agrees that
from and after the Closing Date it will not use such confidential
information or disclose such confidential information to any person or
entity for any purpose or reason whatsoever, except to authorized
representatives of Buyer, unless such information becomes known to the
public generally through no fault of the Company or the Shareholders, or
unless the Shareholders are required by law to disclose such information.
If any Shareholder is requested to provide such information pursuant to
requirements of applicable law, he shall notify Buyer as promptly as
possible and shall allow Buyer the opportunity to oppose such request. In
the event of a breach or threatened breach by the Company or a Shareholder
of the provisions of this Section, Buyer shall be entitled to an injunction
restraining the Company or Shareholder from disclosing, in whole or in
part, such confidential information. Nothing herein shall be construed as
prohibiting Buyer from pursuing any other available remedy for such breach
or threatened breach, including the recovery of damages.
(b) REMEDIES. The Shareholders acknowledge and agree that,
because the legal remedies of Buyer may be inadequate in the event of a
breach of any of the covenants set forth in this Section, Buyer may, in its
discretion and in addition to obtaining
18
any other remedy or relief available to it (including, without limitation,
damages at law), enforce the provisions of this Section by injunction and
other equitable relief.
(c) NONDISCLOSURE BY BUYER. Buyer agrees that, unless and until
the Closing has been consummated, all Confidential Information (as defined
below) shall be kept confidential by Buyer as required by this subsection
(c); provided, however, that (i) any of such Confidential Information may
be disclosed to such directors, officers, employees, and authorized
representatives of Buyer (collectively, for purposes of this Section,
"Buyer Representatives") as need to know such information for the purpose
of evaluating the transactions contemplated hereby (it being understood
that such Buyer Representatives shall be informed by Buyer of the
confidential nature of such information and shall be required to treat such
information confidentially), (ii) any disclosure of Confidential
Information may be made to the extent to which the Company and the
Shareholders consent in writing, (iii) Confidential Information may be
disclosed by Buyer or any Buyer Representative, to the extent that, in the
opinion of counsel, Buyer or such Buyer Representative is legally compelled
to do so, provided that, prior to making such disclosure and if there is
time to do so, Buyer or such Buyer Representative, as the case may be,
advises and consults with the Company and the Shareholders regarding such
disclosure and provided further that Buyer or such Buyer Representative, as
the case may be, discloses only that portion of the Confidential
Information as is legally required, and (iv) any of such Confidential
Information may be disclosed to any banks or financial institutions or
other prospective investors who agree in writing to comply with the
provisions of this Section. Buyer agrees that none of the Confidential
Information will be used for any purpose other than in connection with the
transactions contemplated hereby. The term "Confidential Information", as
used herein, means all information obtained by or on behalf of Buyer from
the Shareholders or the Company pursuant to this Section and all similar
information obtained from the Company or the Shareholders by or on behalf
of Buyer prior to the date of this Agreement, other than information which
(i) was or becomes generally available to the public other than as a result
of disclosure by Buyer or any Buyer Representative, (ii) was or becomes
available to Buyer on a nonconfidential basis prior to disclosure to Buyer
by the Shareholders or the Company or their respective representatives, or
(iii) was or becomes available to Buyer from a source other than the
Shareholders or the Company and their respective representatives, provided
that such source is not known by Buyer to be bound by a confidentiality
agreement with the Shareholders or the Company. The agreement contained in
this Section 5.1(c) shall terminate upon the Closing.
(d) RETURN OF INFORMATION. If this Agreement is terminated,
Buyer shall promptly return or destroy, and shall use its reasonable best
efforts to cause all Buyer Representatives to promptly return or destroy,
all Confidential Information relating to the Company without retaining any
copies thereof, provided that such portion of the Confidential Information
as consists of notes, compilations, analyses, reports, or other documents
prepared by Buyer or Buyer Representatives shall be destroyed.
5.2 GOVERNMENTAL FILINGS. Each of Buyer, the Company and the
Shareholders agrees to make as promptly as practicable all filings necessary
under any applicable
19
federal, state, local and foreign laws and to obtain any required regulatory
approvals, clearances or expirations of waiting periods in connection with the
transactions contemplated by this Agreement (all such filings required to be
made as provided herein are referred to herein collectively as the "Governmental
Filings"). Each party shall use its good faith best efforts, and cause its
counsel to use their good faith best efforts, to cooperate with the other
parties in preparing their respective Governmental Filings and in obtaining all
required regulatory approvals, clearances and expirations of waiting periods.
5.3 LEGAL CONDITIONS. Each of Buyer, the Company and the
Shareholders will take all reasonable actions necessary to comply promptly with
all legal requirements which may be imposed on such party with respect to the
consummation of the transactions contemplated by this Agreement and will
promptly cooperate with and furnish information to such other party or parties
in connection with any such requirements as may be imposed upon such other party
or parties in connection with the consummation of the transactions contemplated
by this Agreement.
5.4 CERTAIN DEFAULTS. The Company will give prompt notice to Buyer
of (a) any notice of default received by it subsequent to the date of this
Agreement and prior to the Closing Date under any material instrument or
material agreement to which it is a party or by which it is bound, which default
would, if not remedied, result in a Material Adverse Change or which would
render materially incomplete or untrue any representation made herein, and
(b) any suit, action or proceeding instituted or, to the knowledge of it,
threatened against or affecting it subsequent to the date of this Agreement and
prior to the Closing Date which, if adversely determined, would result in a
Material Adverse Change or which would render materially incorrect any
representation made herein.
5.5 EXPENSES. Except as provided in Section 10.10 hereof or as
otherwise contemplated herein, whether or not the transactions contemplated by
this Agreement are consummated, all costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby shall be paid by
the party incurring such expense.
5.6 ACCESS TO INFORMATION AND DILIGENCE REVIEW. Between the date of
this Agreement and the Closing Date at Buyer's expense the Company shall
(i) give Buyer and its authorized representatives reasonable access during
normal business hours to all plants, offices, warehouses and other facilities
and to all contracts, internal reports, data processing files and records,
federal, state, local and foreign tax returns and records, commitments, books,
records and affairs of the Company, whether located on the premises of the
office facilities for the Company or at another location, including, without
limitation, the relationship of the Company to its related employee leasing
company; (ii) permit Buyer to make such inspections as it may require,
(iii) cause its officers to furnish to Buyer such financial, operating,
technical and product data and other information with respect to the business
and properties of the Company as Buyer from time to time may request, including
without limitation financial statements and schedules, and (iv) assist and
cooperate with Buyer in the development of integration plans for implementation
by Buyer following the Closing Date; provided, however, that no investigation
pursuant to this Section shall affect or be deemed to modify any representation
or warranty made by the Company or the Shareholders herein and provided further
that the Company shall have the right to have a representative present at all
times.
20
5.7 ADDITIONAL ACTIONS. Subject to the terms and conditions of this
Agreement, each of the parties hereto agrees to use all reasonable good faith
efforts to take, or cause to be taken, all reasonable action and to do, or cause
to be done, all things reasonably necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement as promptly as reasonably
practicable. The Company and the Shareholders shall give prompt notice to Buyer
of any material breach of any of their respective covenants hereunder or the
occurrence of any event that is reasonably likely to cause any of their
respective representations and warranties hereunder to become incomplete or
untrue in any material respect.
5.8 TAX MATTERS.
(a) PREPARATION OF TAX RETURNS DUE PRIOR TO CLOSING AND PAYMENT
OF TAXES. The Shareholders and the Company shall take all actions required
to maintain, and shall refrain from taking any actions that would
terminate, the Company's qualification as an S corporation for federal tax
purposes for the period through and including the day immediately preceding
the Closing Date. The Shareholders shall cause the Company to, and the
Company shall, prepare (on a Consistent Basis as that term is defined in
Section 5.8(b)(ii) hereof) and timely file all Tax Returns and amendments
thereto having a due date (not including extensions) on or before the
Closing Date, and all such Tax Returns shall be true, complete and
accurate. Any Tax Return having a due date which has been extended to a
date following the Closing Date, including but not limited to federal and
state income and franchise tax returns for the 1995 calendar year if the
due date therefor has been so extended, shall be subject to the foregoing
covenant. All Taxes shown to be payable by the Company on such Tax Returns
shall be paid in full by the Shareholders prior to the Closing Date and no
Taxes shall be payable by the Company with respect to items or periods
covered by such Tax Returns (whether or not shown on or reportable on such
Tax Returns).
(b) PREPARATION OF 1996 FEDERAL INCOME AND TEXAS FRANCHISE TAX
RETURNS DUE FOLLOWING CLOSING AND PAYMENT OF TAXES.
(i) SHORT PERIOD S CORPORATION RETURN. The parties
acknowledge and agree that Code Section 1362(e)(6)(D) shall be effective as
of the Closing Date and that the Company shall be required to file a short
period return as an S corporation for the period commencing January 1,
1996, and ending on the day immediately preceding the Closing Date (herein
the "Short Period S Return"). Prior to the due date (including extensions)
for such Short Period S Return, Shareholders shall cause to be prepared and
shall submit to Buyer such Short Period S Return. Such Short Period S
Return (A) shall be true, accurate and complete and shall be prepared so as
to report the Company's income, losses, gains, profits, deductions, credits
and other tax items (collectively "Tax Items") consistently with the manner
in which equivalent or comparable Tax Items have been reported by the
Company in Tax Returns filed with respect to prior years but taking into
account any changes to such items heretofore given effect pursuant to
amendments to such prior year Tax Returns or pursuant to adjustments
related to such prior year Tax Returns resulting from tax audits, tax
examinations or other administrative
21
or judicial tax proceedings (collectively "Tax Proceedings") which are
final and complete prior to the preparation of such Short Period S Return
(herein such prior year consistency requirement shall be referred to as
preparing and filing 1996 Tax Returns on a "Consistent Basis"), and
(B) shall be prepared based on a closing of the Company's books as of the
Closing Date based on the Company's normal tax accounting methods and in
accordance with the requirements of Code Section 1362(e)(6)(D). Such Short
Period S Return shall be submitted by Shareholders to Buyer on or before
the date that is 60 days prior to the due date (including extensions) for
the filing of such Short Period S Return. On or before the date that is
30 days prior to such due date (including extensions), Buyer shall notify
Shareholders as to whether Buyer agrees that such Short Period S Return has
been properly prepared on a Consistent Basis in accordance with this
Section 5.8(b)(i). If Buyer approves such Short Period S Return, or fails
to provide any notice of objections prior to the expiration of such review
period, the Short Period S Return shall be filed as furnished to Buyer. If
during such review period Buyer shall notify Shareholders that Buyer does
not agree that such Short Period S Return has been properly prepared in
accordance with this Section 5.8(b)(i), the parties shall attempt in good
faith to resolve the Buyer's objections, and if they are unable to resolve
such objections the matter shall be resolved pursuant to the dispute
resolution provisions of Article IX hereof. Upon resolution of such
dispute, and in all events prior to the due date thereof (including
extensions), Buyer shall cause such Short Period S Return to be filed. If
Shareholders shall fail to timely submit to Buyer any such Short Period S
Return prepared in accordance with this Section 5.8(b)(i), Buyer shall
cause such Short Period S Return to be prepared in accordance with this
Section 5.8(b)(i) and timely filed, and any expense incurred by Buyer in
preparing and filing such Short Period S Return shall be paid by
Shareholders. The Shareholders shall pay and discharge on a timely basis
all Taxes shown to be payable by the Company as reflected on such Short
Period S Return and no Taxes shall be payable by the Company with respect
to items or periods covered by such Short Period S Return. Any refunds of
such Taxes, whether pursuant to amended returns or any Tax Proceeding,
shall be paid to and for the benefit of Shareholders. Any additional Taxes
(including interest, penalties and other additions to tax) in excess of the
Taxes reflected on the Short Period S Return which at any time are imposed
upon or against or otherwise become payable by the Company with respect to
the short period, whether as a result of a Tax Proceeding or otherwise,
shall be paid by Shareholders promptly upon demand therefor by Buyer.
(ii) TEXAS FRANCHISE TAX RETURN. For purposes of the Texas
corporate franchise tax, the parties acknowledge and agree that the Company
will be required, with respect to the 1996 year, to file a full year return
(herein the "Full Year Return") reporting and accounting for such Texas
franchise tax on an aggregate basis covering both the 1996 period ending on
the Closing Date (the "Pre-Closing Period") and the 1996 period following
the Closing Date (the "Post-Closing Period"). Prior to the due date
(including extensions) for such Full Year Return, Buyer shall cause the
Company to prepare and timely file such Full Year Return on which all Tax
Items attributable to the Pre-Closing Period shall be reported and
accounted for on a Consistent Basis. Prior to the due date for the payment
of the Taxes shown to be payable by the Company on such Full
22
Year Return, the Shareholders shall pay to Buyer the portion of such Taxes
attributable to the Pre-Closing Period. Such portion shall be the amount
of such Taxes as calculated and determined as if the Pre-Closing Period
constituted a short period as to which a short period return were prepared
and filed in accordance with the provisions of Section 5.8(b)(i). Any
refunds of such Taxes, whether pursuant to amended returns or any Tax
Proceeding, shall be paid to and for the benefit of Shareholders. Any
additional Taxes (including interest, penalties and other additions to tax)
attributable to the Pre-Closing Period (as determined in the same manner)
which as a result of any Tax Proceeding or otherwise are imposed upon or
against or otherwise become payable by the Company with respect to the Pre-
Closing Period shall be paid by the Shareholders promptly upon demand
therefor by Buyer.
(iii) On or before the date which is 90 days following
the Closing Date, Buyer shall cause the Company to make available to
Shareholders and their representatives such information pertaining to the
Company as is reasonably required to prepare the Short Period S Return in
accordance with the provisions of Section 5.8(b)(i).
(c) OTHER TAX RETURNS AND TAXES. Prior to the due date
(including extensions) for any other Tax Returns which the Company is
required to file with respect to the 1996 year, Buyer shall cause such Tax
Returns to be prepared and filed. Prior to the due date for the payment of
any Taxes shown to be payable by the Company on any such Tax Returns,
Shareholders shall pay to Buyer the portion of such Taxes attributable to
the Pre-Closing Period. Such portion shall be the amount of such Taxes as
calculated and determined as if the Pre-Closing Period constituted a short
period as to which a short period return were prepared and filed in
accordance with the provisions of Section 5.8(b)(i). Any additional Taxes
(including interest, penalties and other additions to tax) attributable to
the Pre-Closing Period (as determined in the same manner) which as a result
of any Tax Proceeding or otherwise are imposed upon or against or otherwise
become payable by the Company shall be paid by the Shareholders promptly
upon demand therefor by Buyer. The foregoing is intended to implement the
parties' agreement that the Shareholders shall be responsible for the
payment of any Taxes attributable to the Company's activities and
operations during the Pre-Closing Period. The parties further agree that
the Shareholders shall have no liability hereunder with respect to Taxes
attributable to the Company's activities and operations in any Post-Closing
Period. For such purposes, if the Company is a partner in a partnership as
of the Closing Date which has a tax year that does not end as of the
Closing Date, any Tax liability attributable to such partnership's
activities shall be allocated among the Pre-Closing Period and the Post-
Closing Period on a fair and reasonable basis consistent with the
allocation principles underlying this Section 5.8. Notwithstanding the
foregoing, the Shareholders shall not be liable for any Pre-Closing Period
Taxes that are imposed upon the Company with respect to the Pre-Closing
Period solely and directly as a result of changes in the Company's business
and operations following the Closing Date.
(d) TRANSFER TAXES. As used herein the term "Transfer Taxes"
shall mean any Taxes imposed on or with respect to the sale of stock as
contemplated by this Agreement. The Shareholders shall pay all such
Transfer Taxes.
23
(e) ACCESS TO RECORDS FOLLOWING CLOSING. Shareholders agree
that so long as any books, records and files retained by Shareholders
relating to the business of Company, to the extent they relate to the
operations of Company prior to the Closing Date, remain in existence and
available, Buyer (at its expense) shall have the right upon prior notice to
inspect and to make copies of the same at any time during business hours
for any proper purpose. Shareholders shall use reasonable efforts not to
destroy or allow the destruction of any such books, records and files
without first offering in writing to deliver them to Buyer.
(f) REFUNDS. Buyer agrees to pay to the Shareholders, in
proportion to their respective ownership interests in the Company, any
refund received after the Closing Date by Buyer or the Company, in respect
of any Taxes for which the Shareholders are liable under
SECTION 8.1(a)(II) hereof, but only to the extent such has not been
reflected as a receivable on the Financial Statements. The Company shall
be entitled to any refund in respect of any Taxes for which the
Shareholders are not liable under SECTION 8.1(a)(II) hereof, and if the
Shareholders shall receive any such refund they shall pay the same to the
Company or to Buyer on behalf of the Company. The parties shall cooperate
in order to take all necessary steps to claim any such refund. Any such
refund received by a party or its affiliate for the account of the other
party shall be turned over to such other party within 10 days after such
refund is received.
(g) COOPERATION. Within 10 days of receipt, each party will
provide, or cause to be provided, to the other party copies of all
correspondence received from any taxing authority by such party or any of
its affiliates in connection with the liability of the Company for Taxes
for any period for which such other party is or may be liable under
SECTIONS 8.1(a)(II) or 8.1(b)(II) or otherwise. The parties will, at
their own expense, provide each other with such cooperation and information
as they may reasonably request of each other in preparing or filing any
return, amended return or claim for refund, in determining a liability or a
right of refund or in conducting any audit or other Tax Proceeding,
including cooperating with respect to reasonable requests from the other
party for extending statutes of limitation applicable to any Tax
Proceeding, in respect of Taxes for any period for which such other party
is or may be liable under SECTIONS 8.1(a)(II) or 8.1(b)(II) or otherwise.
(h) SURVIVAL. Notwithstanding any other provision of this
Agreement, the covenants set forth in this Section shall survive until the
expiration of the respective statute of limitations applicable to the
period to which the Taxes relate.
5.9 FURTHER CONVEYANCES, ASSURANCES AND COOPERATION. After the
Closing, the Shareholders will, without further consideration of any nature from
Buyer, other than reimbursement of expenses reasonably incurred at the request
of Buyer, execute and deliver, or cause to be executed and delivered, to Buyer,
such additional documentation and instruments as Buyer may reasonably request,
to (i) sell, transfer and assign to and fully vest in Buyer ownership of the
Shares (ii) allow Buyer to operate the business of the Company, (iii) obtain any
consent or approval which was not obtained on or prior to the Closing,
(iv) comply with any Tax investigation, audit or inquiry, (v) allow Buyer to use
the name of the Company and the name
24
"American Dental Group Agency, Inc." for business in all states of the United
States, whether through a consent to use of name or otherwise, or (vi) otherwise
provide information, books, records, evidence, testimony and other reasonable
assistance to Buyer in connection with its ownership of the business of the
Company.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS
OF THE PARTIES
6.1 CONDITIONS TO THE OBLIGATIONS OF BUYER, THE COMPANY AND THE
SHAREHOLDERS. The respective obligations of Buyer, the Company and the
Shareholders set forth in this Agreement shall be subject to the satisfaction on
or prior to the Closing Date of the following conditions, unless waived by each
such party:
(a) GOVERNMENTAL APPROVALS. All material authorizations,
consents, orders or approvals of, or declarations or filings with, or
expiration of waiting periods imposed by, any federal, state, local or
foreign governmental or regulatory authority (including, without
limitation, the Texas Department of Insurance) necessary for the
consummation of the transactions contemplated by this Agreement shall have
been filed, occurred or been obtained, including any and all necessary
permits, licenses and certificates.
(b) LEGAL ACTION. No temporary restraining order, preliminary
injunction or permanent injunction or other order preventing the
consummation of the transactions contemplated by this Agreement shall have
been issued by any federal, state or foreign court or other governmental or
regulatory authority and remain in effect, and no litigation seeking the
issuance of such an order or injunction, or seeking substantial damages
against Buyer or the Company if the transactions contemplated by this
Agreement are consummated, shall be pending which, in the good faith
judgment of the Boards of Directors of Buyer or the Company (acting upon
advice of their respective counsel) has a reasonable probability of
resulting in such order, injunction or substantial damages. In the event
any such order or injunction shall have been issued, each party agrees to
use its reasonable efforts to have any such injunction lifted.
(c) STATUTES. No federal, state, local or foreign statute, rule
or regulation shall have been enacted which would make the consummation of
the transactions contemplated by this Agreement illegal.
(d) FINANCING. Buyer shall have obtained financing in a form
and amount reasonably satisfactory to enable Buyer to fulfill its
obligations under this Agreement.
(e) SATISFACTION OF AMERICAN DENTAL CONDITIONS. All conditions
precedent to the Closing set forth in the American Stock Purchase Agreement
shall have been satisfied in full or waived.
25
6.2 FURTHER CONDITIONS TO THE OBLIGATIONS OF BUYER. The obligations
of Buyer set forth in this Agreement are subject to the satisfaction on or prior
to the Closing Date of the following conditions, unless waived by Buyer:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company and the Shareholders set forth in this Agreement
shall be true and correct in all material respects as of the date of this
Agreement and as of the Closing Date as though made at and as of the
Closing Date (except to the extent such representations or warranties speak
to a particular date), and Buyer shall have received a certificate signed
by the Shareholders and authorized officers of the Company to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF OTHER PARTIES. The Company
and the Shareholders shall have performed in all material respects all
obligations required to be performed by them under this Agreement prior to
the Closing Date and Buyer shall have received a certificate signed by the
Shareholders and authorized officers of the Company to such effect.
(c) NO LITIGATION. Since the date hereof, there shall not have
been instituted and be continuing or threatened against the Company any
claim, action or proceeding the result of which could reasonably be
expected to result in a Material Adverse Change.
(d) NO ADVERSE CHANGE. No Material Adverse Change shall have
occurred in the business, operations or prospects of the Company.
(e) SPOUSAL CONSENT. A spousal consent to the transactions
contemplated by this Agreement, substantially in the form of EXHIBIT A
hereto, shall have been executed and delivered by the spouse of each
Shareholder, if applicable.
(f) THIRD-PARTY APPROVALS. Any and all consents required from
third parties relating to contracts, licenses, leases and other agreements
and instruments material to the financial condition or results of
operations of the Company shall have been obtained.
(g) RESIGNATIONS. The Company shall have delivered to Buyer all
resignations of the officers and directors of the Company requested by
Buyer, effective as of the Closing Date.
(h) BOARD AND SHAREHOLDER APPROVAL. The Board of Directors and
the Shareholders of the Company shall have approved the form of the
definitive purchase agreement and all related agreements and documents and
the Shareholders shall provide Buyer with a copy of such resolutions at the
Closing.
(i) FINANCIAL STATEMENTS AUDIT. At the Company's expense, the
Company shall cause its certified independent accountants (the "Company's
Accountant")
26
to conduct and complete an independent audit of the Interim Financial
Statements (the "Audit") pursuant to generally accepted accounting
principles. The Company shall have delivered to Buyer an unqualified
opinion of the Company's Accountant, in a form and substance reasonably
satisfactory to Buyer, certifying the Audit.
(j) FINANCIAL RESULTS. The results of operations (net income)
less commissions or distributions of the Company determined in accordance
with generally accepted accounting principles for the period January 1,
1996 through the Closing shall be greater than or equal to zero.
(k) OPINION OF COUNSEL. Buyer shall have received an opinion
dated the Closing Date of ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ PC, counsel to the Company, in
form and substance acceptable to Buyer.
(l) AGREEMENT TERMINATION. The Shareholders shall cause any
commission agreements by and among the Company and ▇▇. ▇▇▇▇▇▇▇▇▇ and ▇▇.
▇▇▇▇▇▇ to be terminated and to be of no further force and effect on or
prior to the Closing Date with no further obligation of the Company to make
payments thereunder. To the extent that the Company has any contracts or
agreements with affiliates of American Dental or the Company or family
members of the Shareholders, such arrangements shall be terminated as of or
prior to the Closing Date.
(m) EMPLOYMENT ARRANGEMENTS. Other than payment to employees in
the ordinary course of business, there will be no obligation on the part of
the Company for any amounts due for salary or accrued vacation to any
terminating employees of the Company or for salary or accrued vacation to
▇▇. ▇▇▇▇▇▇▇▇▇ and ▇▇. ▇▇▇▇▇▇ after the Closing Date.
(n) PAYMENT AND RELEASE OF LIENS. All amounts owing under any
bank loans, lines of credit or other indebtedness shall be paid off in full
as of the Closing Date and the Shareholders shall provide Buyer either
evidence that such lien has been terminated or shall deliver to Buyer a
termination statement signed by the lien holder on the Closing Date
terminating the lien on the property of the Company.
6.3 FURTHER CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND THE
SHAREHOLDERS. The obligations of the Company and the Shareholders set forth in
this Agreement are subject to the satisfaction on or prior to the Closing Date
of the following conditions, unless waived by the Company and the Shareholders:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Buyer set forth in this Agreement shall be true and correct
in all material respects as of the date of this Agreement and as of the
Closing Date as though made at and as of the Closing Date (except to the
extent such representations or warranties speak to a particular date), and
the Company and the Shareholders shall have received a certificate signed
by authorized officers of Buyer to such effect.
27
(b) PERFORMANCE OF OBLIGATIONS OF OTHER PARTIES. Buyer shall
have performed in all material respects all obligations required to be
performed by it under this Agreement prior to the Closing Date, and the
Company and the Shareholders shall have received a certificate signed by
authorized officers of Buyer to such effect.
(c) THIRD-PARTY APPROVALS. Any and all consents required by
Buyer from third parties in order to consummate the transactions
contemplated hereby shall have been obtained.
ARTICLE VII
TERMINATION, EXTENSION AND WAIVER
7.1 TERMINATION This Agreement may be terminated at any time prior
to the Closing Date as follows:
(a) BY MUTUAL CONSENT By mutual consent of the Company and
Buyer.
(b) BY ANY PARTY By any party to this Agreement if:
(i) the transactions contemplated by this Agreement shall
not have been consummated on or before September 30, 1996; provided
that the failure of the transactions to be consummated by such date is
not caused by any breach of this Agreement by the party seeking such
termination;
(ii) a court of competent jurisdiction or other governmental
or regulatory authority shall have issued an order, decree or ruling
or taken any other action, in each case permanently restraining,
enjoining or otherwise prohibiting the consummation of the
transactions contemplated by this Agreement and such order, decree,
ruling or other action shall have become final and not appealable;
(iii) any statute, rule or regulation is enacted,
promulgated or deemed applicable to the transactions contemplated by
this Agreement by any competent governmental or regulatory authority
which makes the consummation of the transactions illegal; or
(iv) the American Stock Purchase Agreement terminates in
accordance with its terms, including due to the failure of the
Department of Insurance of the State of Texas to approve in writing
the application for transfer of control of American Dental without
withdrawing such disapproval within 20 days after the date on which
the Company and/or Buyer receive notice of such written disapproval.
(c) BY BUYER. By Buyer if a material default under or a
material breach of this Agreement by the Company or the Shareholders, as
the case may be, shall have occurred and be continuing ten (10) business
days after receipt of notice thereof from Buyer.
28
(d) BY THE COMPANY. By the Company if a material default under
or a material breach of this Agreement by Buyer shall have occurred and be
continuing ten (10) business days after receipt of notice thereof from the
Company.
Any action taken to terminate this Agreement pursuant to this Section
shall become effective when notice of such termination is delivered by the
terminating party to the other party in accordance with the provisions of
SECTION 10.2 below.
7.2 EFFECT OF TERMINATION. In the event of the termination of this
Agreement pursuant to Section 7.1 by the Shareholders of the Company, on the one
hand, or Buyer, on the other, written notice thereof shall be given promptly to
the other party specifying the provision hereof pursuant to which such
termination is made, and this Agreement shall become void and have no effect,
except that the agreements contained in this Section and in Sections 2.10
(Broker's Commissions or Finder's Fees), 4.5 (No Solicitation), 5.1
(Confidentiality), 5.5 (Expenses), Article IX (Arbitration), or 10.10
(Attorney's Fees), shall survive the termination hereof for a period of one
year, unless a specific claim in writing with respect to these matters shall
have been made before such date. Nothing contained in this Section shall
relieve any party from liability for damages actually incurred as a result of
any breach of this Agreement.
7.3 EXTENSION; WAIVER. At any time prior to the Closing Date, to the
extent legally allowed, any party hereto (a) may extend the time for the
performance of any of the obligations owed to such party by the other parties
hereto, (b) may waive any inaccuracies in the representations and warranties
made to such party contained herein or in any document delivered pursuant
hereto, and/or (c) may waive compliance with any of the agreements or conditions
for the benefit of such party contained herein. Any agreement on the part of a
party hereto to any such extension or waiver shall be valid if set forth in an
instrument in writing signed on behalf of such party and shall be effective only
to the extent set forth in such instrument. No extension or waiver of any
single condition, covenant, agreement, representation, warranty, breach, default
or other matter hereunder shall be deemed an extension or waiver of such or any
other condition, covenant, agreement, representation, warranty, breach, default
or other matter theretofore or thereafter occurring. The rights, remedies,
powers and privileges herein provided are cumulative and not exclusive of any
rights, remedies, powers and privileges provided by law. The failure of any
party to insist upon a strict performance of any of the terms or provisions of
this Agreement, or to exercise any option, right or remedy herein contained,
shall not be construed as a waiver or as a relinquishment for the future of such
term, provision, option, right or remedy, but the same shall continue and remain
in full force and effect.
ARTICLE VIII
INDEMNIFICATION
8.1 INDEMNIFICATION.
(a) INDEMNIFICATION BY THE SHAREHOLDERS. ▇▇. ▇▇▇▇▇▇▇▇▇ and ▇▇.
▇▇▇▇▇▇ shall jointly and severally (except with respect to any
representations or warranties made by such Shareholders severally (and not
jointly) in which case the indemnity provided herein shall be several and
not joint) indemnify and hold harmless Buyer and its
29
affiliates from and against any and all Losses (as defined in SECTION
8.1(C)) incurred by any of such indemnified parties in any way relating to,
arising out of or resulting from:
(i) The breach of any of the representations or warranties
made by the Company or the Shareholders in this Agreement;
(ii) The breach or the failure of performance by the Company
or the Shareholders of any of the covenants, promises or agreements that
any of them is to perform under this Agreement;
(iii) Taxes (including interest, penalties and other
additions to tax that may become payable in respect thereof) which are
(i) Transfer Taxes (as defined in Section 5.8(c)) imposed on Shareholders
that Buyer or the Company pays (in whole or in part) or result in liens or
encumbrances on any assets of Buyer or the Company, and/or (ii) imposed on
the Company in respect of its income, business, property or operations or
for which the Company may otherwise be liable for or with respect to any
period ending prior to or on the Closing Date, including but not limited to
any Taxes for which the Shareholders are liable in accordance with the
provisions of Section 5.8;
(iv) The death of or injury to any person or damage to
property that occurred prior to the Closing and arose out of or in
connection with the business or operations of the Company prior to the
Closing;
(v) All employment-related claims and causes of action, and
all other claims and causes of action, that have arisen or arise out of or
in connection with the business or operations of the Company conducted
prior to the Closing; and
(vi) The existence prior to the Closing Date of any
hazardous or toxic substances, wastes or materials, defined as such or
governed by any applicable Environmental Law ("Hazardous Materials") upon,
about or beneath any property of the Company or migrating or threatening to
migrate from any of such properties, or the existence of a violation of any
Environmental Law pertaining to such properties or the operations of the
Company (including, but not limited to, violations of laws dealing with the
generation, transport, treatment, storage or disposal of hazardous or other
regulated material), regardless of whether the existence of such Hazardous
Materials or the violation of Environmental Law arose prior to the present
ownership or operation of such properties by the Company or was disclosed
to Buyer by the Company, the Shareholders or otherwise.
(b) INDEMNIFICATION BY BUYER. Buyer shall indemnify and hold
harmless the Shareholders and their affiliates from and against any and all
Losses incurred by such indemnified parties in any way relating to, arising
out of or resulting from:
(i) The breach of any of the representations or warranties
made by Buyer in this Agreement;
30
(ii) The breach or the failure of performance by Buyer of
any of the covenants, promises or agreements that it is to perform under
this Agreement;
(iii) Taxes (including interest, penalties and other
additions to tax that may become payable in respect thereof) which are
imposed on the Shareholders in respect of the Company's income, business,
property or operations or for which the Company may otherwise be liable for
or with respect to any period following the Closing Date;
(iv) The death of or injury to any person or damage to
property that occurred after the Closing and arose out of or in connection
with the business or operations of the Company after the Closing;
(v) All employment-related claims and causes of action, and
all other claims and causes of action, that have arisen or arise out of or
in connection with the business or operations of the Company conducted
after the Closing; and
(vi) The existence after the Closing Date of any Hazardous
Materials upon, about or beneath any property of the Company or migrating
or threatening to migrate from any of such properties, or the existence of
a violation of any Environmental Law pertaining to such properties or the
operations of the Company (including, but not limited to, violations of
laws dealing with the generation, transport, treatment, storage or disposal
of hazardous or other regulated material), unless the existence of such
Hazardous Materials or the violation of Environmental Law arose prior to
the ownership or operation of the Company by the Buyer.
(c) DEFINITION OF LOSSES. For purposes of this Article,
"Losses" shall mean any and all liabilities, obligations, losses, damages,
claims, deficiencies, penalties, taxes, levies, actions, judgments,
settlements, suits, costs, legal fees, accountants' fees, disbursements or
expenses. Losses shall exclude any amount which any party actually
receives under any insurance policy which provides coverage for the
liability in question.
8.2 THIRD PARTY CLAIMS, NOTICE AND OPPORTUNITY TO SETTLE.
(a) Within 30 days after the receipt by the party entitled to
indemnity hereunder (the "Indemnified Party") of any claim or demand
(including but not limited to, notice of any action, suit or proceeding) by
any third party (a "Third Party Claim") against an Indemnified Party which
gives rise to a right to indemnification for a Loss hereunder (or, in the
case of the receipt of any notice of any examination, claim, adjustment or
other proceeding with respect to Taxes for any period for which the
Shareholders are liable under SECTION 8.1(a)(iii) or for which Buyer is
liable under SECTION 8.1(b)(iii) ("Tax Proceeding"), promptly after the
receipt of such notice), the Indemnified Party shall give each party who
may be obligated to provide indemnity hereunder (the "Indemnifying Party")
written notice of such claim or demand; provided, however, that the failure
to give such notice shall not relieve the Indemnifying Party of its
obligations hereunder except to the extent that such failure is materially
prejudicial to the Indemnifying Party.
31
(b) The Indemnifying Party shall have the right (without
prejudice to the right of any Indemnified Party to participate at its own
expense through counsel of its own choosing), to defend against such claim
or demand (for purposes of this Section, any Tax proceeding shall be
considered a "claim or demand") at its expense and through counsel of its
own choosing (the choice of such counsel to be subject to the reasonable
consent of the affected Indemnified Parties) and to control such defense if
it gives written notice of its intention to do so within 15 days of the
receipt of the notice referred to in SECTION 8.2(a). If the Indemnifying
Party shall decline to assume the defense of such claim or demand, the
affected Indemnified Parties shall have the right to assume control of such
defense at the expense of the Indemnifying Party. The Indemnified Parties
shall cooperate fully in the defense of such claim or demand and shall make
available to the Indemnifying Party or its counsel all pertinent
information under their control relating thereto. The Indemnifying Party
agrees to cooperate with the Indemnified Parties in order to enable their
counsel to participate in the defense and to deliver to the Indemnified
Parties copies of all pleadings and other information within the
Indemnifying Party's knowledge or possession reasonably requested by the
Indemnified Parties that is relevant to the defense of any such claim or
demand. The Indemnified Parties and their counsel shall maintain
confidentiality with respect to all such information consistent with the
conduct of a defense hereunder.
(c) The Indemnifying Party shall have the right to elect to
settle (i) any such claim or demand other than a Tax Proceeding, for
monetary damages only and including an unconditional release, or (ii) any
Tax Proceeding, subject to the consent of the affected Indemnified Party,
provided, however, with respect to any Permissible Settlement (as defined
herein), if the affected Indemnified Parties fail to give such consent
within 20 days of being requested to do so, the affected Indemnified
Parties shall, at their expense, assume the defense of such claim or demand
and regardless of the outcome of such matter, the Indemnifying Party's
liability hereunder shall be limited to the amount of any such proposed
settlement. As used herein the term "Permissible Settlement" shall mean a
settlement as to which there is no reasonable likelihood that it will
result in the imposition on such affected Indemnified Parties of Taxes for
a taxable period for which the Indemnifying Party is not obligated
hereunder to indemnify such affected Indemnified Parties.
(d) In the event the Indemnifying Party assumes the defense of a
claim or demand, the Indemnified Parties shall have the right to assume
control of the defense of any claim or demand from the Indemnifying Party
at any time and to elect to settle such claim or demand; provided, however,
the Indemnifying Party shall have no indemnification obligations with
respect to such claim, demand or settlement except for the costs and
expenses of such Indemnifying Party incurred prior to the assumption of the
defense of the claim or demand by the Indemnified Parties.
8.3 RIGHT TO OFFSET. Buyer shall have the right to offset all or any
part of its Losses under this Agreement against that portion of the Holdback
under the American Stock Purchase Agreement allocable to the Shareholders
($900,000) by notifying the Shareholders in writing that Buyer is reducing the
amount owed to the Shareholders; provided, however, that the
32
Shareholders shall have thirty (30) days following receipt of such notification
to rectify the cause of any such loss to Buyer before Buyer shall be entitled to
exercise its right of offset or recoupment hereunder. Buyer shall offset its
Losses against the Holdback until the Shareholders' allocable portion of the
Holdback is exhausted, at which time the Shareholders shall be personally liable
as provided in this Agreement for any remaining and future Losses, whether
undisputed or established in accordance with Article IX hereof. Notwithstanding
the foregoing, the existence of the Holdback and any offsets thereunder shall
not relieve the Shareholders from liability or limit their liability to Buyer
for any breaches hereunder.
8.4 NON-THIRD PARTY CLAIMS. In the event any Indemnified Party
should have a claim against any Indemnifying Party hereunder which does not
involve a Third Party Claim, the Indemnified Party shall transmit to the
Indemnifying Party a written notice (the "Indemnity Notice") describing in
reasonable detail the nature of the claim, an estimate of the amount of damages
attributable to such claim and the basis of the Indemnified Party's request for
indemnification under this Agreement. If the Indemnifying Party does not notify
the Indemnified Party within 30 days from the Indemnifying Party's receipt of
the Indemnity Notice that the Indemnifying Party disputes such claim, the claim
specified by the Indemnified Party in the Indemnity Notice shall be deemed a
liability of the Indemnifying Party hereunder; provided, however, that, if Buyer
asserts a claim that is not a Third Party Claim and the Indemnifying Party does
not dispute such claim in a timely manner in accordance with this Section 8.4,
Buyer shall have offset and recoup its Losses as provided in SECTION 8.3.
8.5 PAYMENTS. Any timely, disputed non-Third Party Claim shall be
submitted to arbitration in accordance with the provisions of Article IX hereof.
Payments of all amounts owing by an Indemnifying Party pursuant to this Article
relating to a Third Party Claim shall be made within 30 days after the latest of
(a) the settlement of such Third Party Claim, (b) the expiration of the period
for appeal of a final adjudication of such Third Party Claim or (c) the
expiration of the period for appeal of a final adjudication of the Indemnifying
Party's liability to the Indemnified Party under this Agreement. Subject to
SECTION 8.3, payments of all amounts owing by an Indemnifying Party pursuant to
SECTION 8.4 shall be made within 30 days after the later of (i) the expiration
of the 30-day Indemnity Notice period or (ii) the expiration of the period for
appeal of a final adjudication of the Indemnifying Party's liability to the
Indemnified Party under this Agreement.
ARTICLE IX
DISPUTE RESOLUTION
All disputes arising under this Agreement shall be resolved by
submission to binding arbitration at the Dallas office of JAMS/Endispute
("JAMS") in accordance with its rules and procedures regarding commercial
disputes, except to the extent such rules or procedures vary from the following
provisions:
9.1 NOTICE. The party desiring to initiate arbitration can do so by
sending written notice of an intention to arbitrate by registered or certified
mail to the other parties and to JAMS. The notice must contain a description of
the dispute, the amount of money involved, and the remedies sought.
33
9.2 ARBITRATOR. The parties shall attempt to agree on a retired
judge from the JAMS panel to act as the arbitrator hereunder. If the parties
are unable to agree, JAMS shall provide a list of three available judges to each
party and each party may strike one. The remaining judge shall serve as the
arbitrator. The parties agree the arbitration must be initiated within one year
after the claimed breach occurred and that the failure to initiate arbitration
within the one year period constitutes an absolute bar to the institution of any
arbitration or any judicial proceeding on any dispute set forth in the notice of
intent to arbitrate.
9.3 PRE-HEARING CONFERENCE. Once an arbitrator is assigned to hear
the matter, the arbitrator shall schedule a pre-hearing conference to reach
agreement on procedural matters, arrange for the exchange of information, obtain
stipulations, and attempt to narrow the issues.
9.4 DISCOVERY. It is the parties' objective to expedite the
arbitration proceedings by placing the following limitations on discovery:
(a) on a date to be determined at the pre-hearing conference, each party may
serve one demand for production of documents and one set of twenty
interrogatories (without subparts) upon the other parties (the response to the
document demand, the documents to be produced, and the responses to the
interrogatories shall be exchanged thirty days later); (b) each party may depose
two witnesses. Each deposition must be concluded within eight hours and all
depositions must be taken within sixty days of the pre-hearing conference. Any
party deposing an opponent's expert must pay the expert's fee for attending the
deposition. All discovery disputes shall be decided in the sole discretion of
the arbitrator.
9.5 BRIEFS AND HEARING. The parties must file briefs with the
arbitrator at least three days before the arbitration hearing, specifying the
facts each intends to prove and analyzing the applicable law. The parties have
the right to representation by legal counsel throughout the arbitration
proceedings. The presentation of evidence at the arbitration hearing shall be
governed by the Texas Evidence Code. Within reasonable limitations, both sides
at the hearing may call and examine witnesses for relevant testimony, introduce
relevant exhibits or other documents, cross-examine or impeach witnesses who
shall have testified orally on any matter relevant to the issues, and otherwise
rebut evidence, as long as these rights are exercised in an efficient and
expeditious manner in the sole discretion of the arbitrator. Oral evidence
given at the arbitration hearing shall be given under oath. Any party desiring
a stenographic record may secure a court reporter to attend the arbitration
proceedings. The party requesting the court reporter must notify the other
parties and the arbitrator of the arrangement in advance of the hearing, and
must pay for the cost incurred.
9.6 DECISION. The arbitrator's decision shall be based on the
evidence introduced at the hearing, including all logical and reasonable
inferences therefrom. The arbitrator may grant any remedy or relief which is
just and equitable. The award must be made in writing and signed by the
arbitrator. It shall contain a concise statement of the reasons in support of
the decision. The award must be mailed promptly to the parties, but no later
than thirty days from the closing of the hearing. The award can be judicially
enforced (confirmed, corrected or vacated) pursuant to Tex. Civ. Prac. & Rem.
Code ▇▇▇. Section 171 ET SEQ. The award is final and
34
binding and there is no direct appeal from the award on the grounds of error in
the application of the law.
9.7 COSTS. Each party to the arbitration must pay its own witness
fees. Each party must pay its pro-rata share of the arbitrator's fees. The
arbitrator must award to the prevailing party attorneys' fees and costs actually
and reasonably incurred.
ARTICLE X
GENERAL PROVISIONS
10.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties contained herein shall survive the Closing and will expire on the
fifth anniversary of the Closing Date (the "Survival Date"); unless prior to the
Survival Date, a claim specifying a breach of any of the representations or
warranties described above is submitted in writing to the indemnifying party and
identified as a claim for indemnification pursuant to this Agreement. From and
after the Survival Date, no party hereto nor any shareholder, director, officer,
employee, or affiliate of such party shall have any indemnity obligation
pursuant to Article VIII, except with respect to matters as to which notice has
been received in accordance with this Section 10.1. Notwithstanding the
foregoing, any representations and warranties made relating to antitrust matters
shall not terminate.
10.2 NOTICES. All notices and other communications hereunder shall be
in writing and shall be deemed given upon facsimile transmission (with written
or facsimile confirmation of receipt), or delivery by a reputable overnight
commercial delivery service (delivery, postage or freight charges prepaid), or
on the fourth day following deposit in the United States mail (if sent by
registered or certified mail, return receipt requested, delivery, postage or
freight charges prepaid), addressed to the parties at the following addresses
(or at such other address for a party as shall be specified by like notice):
If to Buyer: Safeguard Health Enterprises, Inc.
▇▇▇ ▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: ▇▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP
▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq.
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Company: T.R.C. Agency, Inc.
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
35
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, D.D.S.
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ PC
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Shareholders: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, D.D.S.
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, D.D.S.
c/o First American Dental Benefits, Inc.
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
10.3 INTERPRETATION. The table of contents and headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
10.4 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be an original and all of which together shall
be one and the same instrument.
10.5 INTEGRATION. This Agreement and the Exhibits, Schedules,
documents, instruments and other agreements among the parties hereto that are
referred to herein or any other agreements dated of even date herewith to which
Buyer, ▇▇. ▇▇▇▇▇▇▇▇▇ and ▇▇. ▇▇▇▇▇▇, among others, are parties, constitute the
entire agreement of the parties with respect to the subject matter set forth
herein or therein and supersede all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof or
thereof.
10.6 GOVERNING LAW. This Agreement and the rights of the parties
hereunder will be interpreted in accordance with the laws of the State of Texas,
and all rights and remedies will be governed by such laws without regard to
principles of conflict of laws.
10.7 AMENDMENT. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
10.8 ASSIGNMENT. No party hereto shall assign or transfer or permit
the assignment or transfer of this Agreement without the prior written consent
of the other parties, except that the Buyer may assign its rights and
obligations hereunder to any wholly-owned subsidiary and its rights hereunder to
any employee of Buyer.
10.9 SEVERABILITY. If any paragraph, section, sentence, clause or
phrase contained in this Agreement will become illegal, null or void or against
public policy, for any reason, or will be held by any court of competent
jurisdiction to be incapable of being construed
36
or limited in a manner to make it enforceable, or is otherwise held by such
court to be illegal, null or void or against public policy, the remaining
paragraphs, sections, sentences, clauses or phrases contained in this Agreement
will not be affected thereby.
10.10 FEES. If any party to this Agreement shall bring any
arbitration or any other action, suit, counterclaim or appeal for any relief
against any other party, declaratory or otherwise, to enforce the terms hereof
or to declare rights hereunder (collectively, an "Action"), the prevailing party
shall be entitled to recover as part of any such Action its reasonable
attorneys' fees and costs, including any fees and costs incurred in bringing and
prosecuting such Action and/or enforcing any order, judgment, ruling or award
granted as part of such Action. "Prevailing party" within the meaning of this
section includes, without limitation, a party who agrees to dismiss an Action
upon the other party's payment of all or a portion of the sums allegedly due or
performance of the covenants allegedly breached, or who obtains substantially
the relief sought.
10.11 TRANSFER TAXES. The Shareholders shall bear all transfer,
sales, use, income or other taxes, if any, payable in connection with the
transfer of Stock contemplated by this Agreement or as a result of the
transactions contemplated hereby, and shall be responsible for the payment of
any individual taxes levied against them personally as a result of selling their
Shares to Buyer.
37
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first written above.
Company: Buyer:
T.R.C. AGENCY, INC., a Texas SAFEGUARD HEALTH ENTERPRISES,
corporation INC., a Delaware corporation
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ By:
--------------------------------- -------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, D.D.S. ▇▇▇▇ ▇. ▇▇▇
Chairman of the Board and Executive Vice President and
Chief Executive Officer Chief Operating Officer
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ By:
--------------------------------- --------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, D.D.S. ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, D.D.S.
Vice President Chairman of the Board, President
and Chief Executive Officer
Shareholders:
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
-------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, D.D.S.
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, D.D.S.
38
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first written above.
Company: Buyer:
T.R.C. AGENCY, INC., a Texas SAFEGUARD HEALTH ENTERPRISES,
corporation INC., a Delaware corporation
By: By: /s/ ▇▇▇▇ ▇. ▇▇▇
--------------------------------- -------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, D.D.S. ▇▇▇▇ ▇. ▇▇▇
Chairman of the Board and Executive Vice President and
Chief Executive Officer Chief Operating Officer
By: By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
--------------------------------- --------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, D.D.S. ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, D.D.S.
Vice President Chairman of the Board, President
and Chief Executive Officer
Shareholders:
-------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, D.D.S.
-------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, D.D.S.
INDEX TO
SCHEDULES AND EXHIBITS
Exhibit A Spousal Consent
Schedule 2.2 Shareholder Interests in the Company
Schedule 2.7 Financial Statements
Schedule 2.12 Litigation
Schedule 2.13 Taxes
Schedule 2.15 Contracts
Schedule 2.16 Commission Arrangements and Sales
Schedule 2.18 Interests in Competitors
Schedule 2.22 Insurance Policies
Schedule 2.24 Banking Facilities
Schedule 2.30 Transactions with Related Parties
Schedule 2.31 Compliance with Insurance Laws
Stock Purchase Agreement
TRC Agency