EXHIBIT 2
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STOCK PURCHASE AGREEMENT
dated as of February 3, 1997
among
Physician Support Systems, Inc.,
PSI Acquisition Corp.,
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇ ▇. ▇▇▇▇▇, as Independent Trustee
of the ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ Family Trust Dated November 4, 1996
and
▇▇▇▇▇ ▇. ▇▇▇▇▇, as Independent Trustee
of the ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ Family Trust Dated November 4, 1996
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TABLE OF CONTENTS
Introduction............................................................... 1
ARTICLE I
Purchase and Sale of The Shares............................................ 1
SECTION 1.1 The Shares..................................................... 1
SECTION 1.2 Purchase Price................................................. 2
SECTION 1.3 Closing........................................................ 2
ARTICLE II
Representations and Warranties............................................. 3
SECTION 2.1 Representations and Warranties of the Company.................. 3
(a) Organization, Standing and Power.................................. 3
(b) Authority; Binding Agreements..................................... 3
(c) Capitalization; Equity Interests.................................. 3
(d) Conflicts; Consents............................................... 4
(e) Financial Information............................................. 5
(f) Absence of Changes................................................ 6
(g) Assets, Property and Related Matters; Real Property............... 7
(h) Patents, Trademarks and Similar Rights............................ 8
(i) Insurance......................................................... 9
(j) Agreements, Etc................................................... 9
(k) Litigation, Etc................................................... 9
(l) Compliance, Governmental Authorizations........................... 9
(m) Labor Relations; Employees........................................ 10
(n) Accounts Receivable............................................... 12
(o) Customers......................................................... 12
(p) Accounts Payable.................................................. 12
(q) Related Party Transactions........................................ 12
(r) Billing and Collection Practices.................................. 13
(s) Tax Matters....................................................... 13
(t) Disclosure........................................................ 14
(u) Bank Accounts; Powers of Attorney................................. 15
(v) Brokers........................................................... 15
SECTION 2.2 Representations and Warranties of Subsidiary and Parent........ 15
(a) Organization, Standing and Power.................................. 15
(b) Authority; Binding Agreements..................................... 15
(c) Conflicts; Consents............................................... 15
(d) Capitalization.................................................... 16
(e) SEC Documents; Financial Statements; No Undisclosed Liabilities... 17
i
(f) Absence of Certain Changes or Events.............................. 17
(g) Litigation, Etc................................................... 17
(h) Compliance; Governmental Authoriziations.......................... 17
(i) Brokers........................................................... 18
(j) Billing and Collection Practices.................................. 18
ARTICLE III
Additional Agreements...................................................... 19
SECTION 3.1 Expenses....................................................... 19
SECTION 3.2 Conduct of Business............................................ 19
SECTION 3.3 Further Assurances............................................. 19
SECTION 3.4 No Shopping.................................................... 19
SECTION 3.5 Access and Information......................................... 20
SECTION 3.6 Confidentiality; Non-Competition............................... 20
SECTION 3.7 Releases; Prior Compensation................................... 21
SECTION 3.8 Nasdaq......................................................... 21
SECTION 3.9 Public Announcements........................................... 21
SECTION 3.10 Tax Matters................................................... 22
SECTION 3.11 Obligations of Subsidiary..................................... 24
SECTION 3.12 Transition Services........................................... 24
ARTICLE IV
Conditions Precedent....................................................... 24
SECTION 4.1 Conditions to Obligations of Parent and Subsidiary............. 24
(a) Authorization..................................................... 24
(b) Representations and Warranties.................................... 24
(c) Consents, Amendments and Terminations............................. 25
(d) Customers; Customer Contracts..................................... 25
(e) Certificates...................................................... 25
(f) Employment Agreement.............................................. 25
(g) Consulting Agreement.............................................. 25
(h) Investment Letter................................................. 25
(i) Corporate Directors and Officers.................................. 25
(j) Share Certificates and Corporation Records........................ 25
(k) Other Documents................................................... 25
SECTION 4.2 Conditions of Obligations of Sellers........................... 25
(a) Authorization..................................................... 25
(b) Representations and Warranties.................................... 26
(c) Registration Rights Agreement..................................... 26
(d) Employment Agreement.............................................. 26
(e) Consulting Agreement.............................................. 26
(f) Certificate....................................................... 26
ii
(g) Opinion of Counsel................................................ 26
(h) Purchase Price.................................................... 26
(i) Other Documents................................................... 26
ARTICLE V
Indemnity.................................................................. 26
SECTION 5.1 Indemnification................................................ 26
SECTION 5.2 Limitations.................................................... 28
SECTION 5.3 Exclusive Remedies............................................. 29
ARTICLE VI
Miscellaneous.............................................................. 30
SECTION 6.1 Entire Agreement............................................... 30
SECTION 6.2 Termination.................................................... 30
SECTION 6.3 Descriptive Headings; Certain Interpretations.................. 30
SECTION 6.4 Notices........................................................ 31
SECTION 6.5 Counterparts................................................... 32
SECTION 6.6 Survival....................................................... 32
SECTION 6.7 Benefits of Agreement.......................................... 32
SECTION 6.8 Amendments and Waivers......................................... 32
SECTION 6.9 Assignment..................................................... 32
SECTION 6.10 Enforceability................................................ 32
SECTION 6.11 GOVERNING LAW................................................. 33
EXHIBITS
A Form of Closing Certificates
B Form of Opinion of Counsel of Sellers
C Form of ▇. ▇▇▇▇▇▇▇▇▇ Employment Agreement
D Form of ▇. ▇▇▇▇▇▇▇▇▇ Consulting Agreement
E Form of Investment Letter
F Form of Registration Rights Agreement
G Form of Opinion of Counsel of Parent
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Stock Purchase Agreement, dated as of February 3, 1997 (the
"Agreement"), among Physician Support Systems, Inc., a Delaware
corporation ("Parent"), PSI Acquisition Corp., a Michigan corporation
and a wholly owned subsidiary of Parent ("Subsidiary"), ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇. ▇▇▇▇▇, as Independent Trustee of
the ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ Family Trust Dated November 4, 1996 and ▇▇▇▇▇ ▇.
▇▇▇▇▇, as Independent Trustee of the ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ Family Trust
Dated November 4, 1996 (each, a "Seller" and, collectively,
"Sellers").
Introduction
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Immediately prior to the date of this Agreement, there were
outstanding 1,000 shares (the "Shares") of common stock ("Company Common Stock")
of Physerv Solutions, Inc., a Michigan corporation (the "Company"), all of which
shares are owned beneficially and of record by Sellers, representing all of the
issued and outstanding capital stock of the Company.
Upon the terms and subject to the conditions set forth in this
Agreement, Subsidiary has agreed to acquire from Sellers, and Sellers have
agreed to sell to Subsidiary, all of the Shares.
As conditions to Subsidiary's acquisition of the Shares, ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ will enter into an employment agreement with the Company and ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ will enter into a consulting agreement with the Company.
The parties agree as follows:
ARTICLE I
Purchase and Sale of the Shares
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SECTION 1.1. The Shares. Upon the terms and subject to the conditions
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set forth in this Agreement, at the Closing (defined in Section 1.3), each
Seller shall sell, convey, assign, transfer and deliver to Subsidiary, and
Subsidiary shall purchase, acquire and accept from each Seller, all of the
Shares owned by such Seller (which Shares are listed in Section 2.1(c) of the
disclosure schedule delivered by Sellers to Subsidiary and Parent simultaneously
with the execution of this Agreement (the "Disclosure Schedule"), free and clear
of all security interests, liens, pledges, charges, escrows, options, rights of
first refusal, mortgages, indentures, security agreements or other claims,
encumbrances, agreements, arrangements or commitments of any kind or character,
whether written or oral and whether or not relating in any way to credit or the
borrowing of money (collectively, the "Claims").
SECTION 1.2. Purchase Price. (a) The purchase price (the "Purchase
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Price") for the Shares and the non-compete agreement set forth in Section 3.6 of
this Agreement shall be (i) cash in the amount of $10,209,181.00 of which
$10,109,181.00 is payable as consideration for the Shares and $100,000 is
payable as consideration for such non-compete agreement and (ii) 342,270 shares
of common stock, par value $.001 per share ("PSS Common Stock"), of Parent.
Notwithstanding the foregoing, (x) the Purchase Price shall be increased by that
number of shares of PSS Common Stock equal to the difference (if any) between
(I) the quotient obtained by dividing $3,000,000 by the average of the last sale
price per share of PSS Common Stock as reported on the Nasdaq National Market
for the last ten trading days of February 1997 and (II) 171,135 and (y) the
Purchase Price shall be decreased by that number of shares of PSS Common Stock
equal to the difference (if any) between (I) 171,135 and (II) the quotient
obtained by dividing $3,000,000 by the average of the last sale price per share
of PSS Common Stock as reported on the Nasdaq National Market for the last ten
trading days of February 1997; provided, that if the calculation in clause (x)
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shall yield a number of shares of PSS Common Stock greater than 1,628,865,
Subsidiary shall have the option to pay to the Sellers 171,135 shares of PSS
Common Stock and cash in the amount of $3,000,000 in lieu of the number of
shares specified in clause (ii) above as adjusted by clause (x).
(b) Subsidiary shall pay at Closing $10,014,181.00 of the cash portion
of the Purchase Price and shall pay the remaining $195,000 of the cash portion
of the Purchase Price in 12 equal monthly installments on the last business day
of each month commencing February 28, 1997. On or before March 15, 1997,
Subsidiary shall deliver to the Sellers share certificates issued by Parent
representing the shares of PSS Common Stock payable hereunder. All payments and
transfers in respect of the Purchase Price shall be made to the Sellers in
proportion to their ownership of the Shares as set forth in Section 2.1(c) of
the Disclosure Schedule and, in the case of the cash portion of the payments,
shall be made by certified or bank check or checks, or, at the option of
Sellers, by wire transfer to an account or accounts of Sellers designated to
Subsidiary. Sellers shall provide Subsidiary with notice of the exercise of such
option and the designation of such account, such notice to be delivered prior to
the Closing.
SECTION 1.3. Closing. The closing (the "Closing") for the consummation
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of the transactions contemplated by this Agreement shall take place at the
offices of ▇▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇
▇▇▇▇ ▇▇▇▇▇, or such other place or places as Sellers and Parent shall agree, at
10:00 a.m., Eastern time, on February 3, 1997; provided, that on such date, all
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conditions set forth in Article IV shall have been satisfied or waived, or such
other date and time agreed to by Sellers and Parent (such date of the Closing
being hereinafter called the "Closing Date").
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ARTICLE II
Representations and Warranties
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SECTION 2.1. Representations and Warranties of the Sellers Sellers
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jointly and severally represent and warrant to Parent and Subsidiary as follows:
(a) Organization, Standing and Power. The Company (i) is a
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corporation duly organized, validly existing and in good standing under the laws
of the State of Michigan and (ii) has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted. The Company is duly qualified to do business and is in
good standing in each jurisdiction in which such qualification is necessary
because of the property owned, leased or operated by it or because of the nature
of its business as now being conducted. The Company has delivered to Parent
complete and correct copies of its Articles of Incorporation and By-Laws and all
amendments thereto to the date hereof and has made available to Parent true and
complete copies of its minute books and stock records. Section 2.1(a) of the
disclosure schedule delivered by the Company to Parent and Subsidiary prior to
the execution of this Agreement (the "Disclosure Schedule") contains (i) a true
and correct list of the jurisdictions in which the Company is qualified to do
business as a foreign corporation and (ii) a true and correct list of the
directors and officers of the Company as of the date of this Agreement and at
all times since the last annual meeting of the board of directors and the
shareholders of the Company.
(b) Authority; Binding Agreements. Each Seller has the legal power and
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capacity to enter into this Agreement, and all other agreements and documents to
which such Seller is a party, as contemplated by this Agreement. This Agreement
and such other agreements and documents are, or upon execution and delivery
thereof by all parties hereto or thereto will be, the valid and binding
obligation of each Seller enforceable against such Seller in accordance with its
terms, except insofar as the enforceability thereof may be limited by (i)
applicable bankruptcy, insolvency, receivership, moratorium, and other similar
laws affecting the rights of creditors generally, or (ii) general principles of
equity regardless of whether asserted in a proceeding in equity or at law.
(c) Capitalization; Equity Interests. The authorized capital stock of
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the Company consists of 18,000,000 shares of Company Common Stock, of which
1,000 shares are issued and outstanding on the date of this Agreement, and
2,000,000 shares of Preferred Stock, none of which are issued or outstanding on
the date of this Agreement. Section 2.1(c) of the Disclosure Schedule contains a
true and correct list of all of the owners (of record and beneficially) of the
issued and outstanding shares of Company Common Stock specifying the number of
such shares owned by, and the address of, each such person. Except as set forth
above, at the time of execution of this Agreement, no shares of capital stock or
other voting securities of the Company are issued, reserved for issuance or
outstanding. All outstanding shares of capital stock of the Company are duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights and are owned by the Sellers free and clear of all Claims.
There are not any bonds, debentures, notes or other indebtedness or securities
of the Company having the right to
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vote (or convertible into, or exchangeable for, directly or indirectly,
securities having the right to vote) on any matters on which shareholders of the
Company may vote. There are not any securities, options, warrants, calls,
rights, commitments, agreements, arrangements or undertakings of any kind to
which the Company is a party or by which the Company is bound obligating the
Company to issue, deliver or sell, or cause to be issued, delivered or sold,
additional shares of capital stock or other voting securities of the Company or
obligating the Company to issue, grant, extend or enter into any such security,
option, warrant, call, right, commitment, agreement, arrangement or undertaking.
There are no outstanding rights, commitments, agreements, arrangements or
undertakings of any kind obligating the Company to repurchase, redeem or
otherwise acquire any shares of capital stock or other voting securities of the
Company or any securities of the type described in the two immediately preceding
sentences. The Company does not have any subsidiaries and does not own or hold
any equity or other security interests in any other entity. For purposes of this
Agreement, a "subsidiary" of any person means another person, an amount of the
voting securities, other voting ownership or voting partnership interests of
which is sufficient to elect at least a majority of its Board of Directors or
other governing body which (or, if there are no such voting interests, 50% or
more of the equity interests of which) is owned directly or indirectly by such
first person; and a "person" means an individual, corporation, partnership,
joint venture, association, trust, unincorporated organization or other entity
(governmental or otherwise).
(d) Conflicts; Consents. The execution and delivery of this Agreement
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and each other agreement or document contemplated by this Agreement, the
consummation of the transactions contemplated hereby and thereby and the
compliance by the Sellers with the provisions hereof and thereof do not and will
not (i) conflict with or result in a breach of the charter, by-laws or other
constitutive documents of the Company, (ii) conflict with or result in a default
(or give rise to any right of termination, cancellation or acceleration) under
any of the provisions of any note, bond, lease, mortgage, indenture, or any
material license, franchise, permit, agreement or other instrument or obligation
to which the Company or any Seller is a party, or by which the Company or any
Seller or any of the Company's or any Seller's properties or assets, may be
bound or affected, except for such conflict, breach or default as to which
requisite waivers or consents shall be obtained before the Closing (which
waivers or consents are set forth in Section 2.1(d) of the Disclosure Schedule),
(iii) violate any law, statute, rule or regulation or order, writ, injunction or
decree applicable to the Company or any Seller or any of the Company's or any
Seller's properties or assets, except for any such violations that are
immaterial to the Company and the Company's properties and assets or (iv) result
in the creation or imposition of any security interest, lien or other
encumbrance upon the Shares or any property or assets used or held by the
Company. No consent or approval by, or any notification of or filing with, any
person is required in connection with the execution, delivery and performance by
the Sellers of this Agreement or any other agreement or document to which a
Seller is party as contemplated by this Agreement or the consummation by the
Sellers of the transactions contemplated hereby or thereby except for such
consents, approvals, orders, authorizations, registrations, declarations and
filings as are set forth in Section 2.1(d) of the Disclosure Schedule.
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(e) Financial Information. (i) The following financial statements are
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contained in Section 2.1(e) of the Disclosure Schedule:
(a) the unaudited balance sheet of the Company at December 31, 1996 and
the related unaudited statement of operations for the year then ended,
certified by the chief executive officer of the Company;
(b) the unaudited balance sheets of the Company at December 31, 1994 and
1995 and the related unaudited statements of operations for each of the
years then ended, prepared by ▇▇▇▇▇▇ & ▇▇▇▇▇▇, P.C., the Company's
independent accountants;
(c) the unaudited monthly balance sheets of the Company as of the end of
each month commencing January 1, 1996 through the month end prior to the
date of this Agreement and the related statement of operations for each
such month, certified by the chief executive officer of the Company,
(d) an unaudited schedule of expenses by category of non-continuing
extraordinary expenses commencing January 1, 1996 through the month end
prior to the date of this Agreement, and
(e) an unaudited Estimated Closing Date Balance Sheet of the Company as
of January 31, 1997, setting forth the Company's best estimate of the
Company's balance sheet as of such date, certified by the chief executive
officer of the Company.
Except as indicated in Section 2.1(e) of the Disclosure Schedule, all such
financial statements have been prepared on a cash/income tax basis consistent
with prior periods. The balance sheets of the Company as at the dates set forth
present fairly the financial position of the Company as at the dates thereof,
and the related statements of operations of the Company for each of the
respective specified periods then ended present fairly the results of operations
of the Company for each of the respective periods then ended. For the purposes
of this Agreement, all financial statements referred to in this paragraph shall
include any notes and schedules to such financial statements.
(ii) There were no liabilities or obligations (whether absolute,
accrued, contingent or otherwise, and whether due or to become due) in respect
of the Company which would be required to be, in accordance with United States
generally accepted accounting principles ("GAAP"), shown or provided for on the
balance sheets of the Company to which such liabilities or obligations related,
and are not disclosed in Section 2.1(e) of the Disclosure Schedule. There are no
loss contingencies that are required to be accrued by Statement of Financial
Accounting Standard No. 5 of the Financial Accounting Standards Board which are
not provided for on such balance sheet. The Estimated Closing Date Balance Sheet
sets forth the Company's reasonable best estimate of the Company's cash/income
tax basis balance sheet as of January 31, 1997 and sets forth any liability or
obligation (whether absolute, accrued, contingent or otherwise, and whether due
or to become due) in respect of the Company which would be
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required to be, under GAAP, included on a balance sheet as of such date, except
as set forth in Section 2.1(e) of the Disclosure Schedule. The assumptions used
in preparing the Estimated Closing Date Balance Sheet are reasonable and
consistent with the Company's past practice.
(f) Absence of Changes. Except as set forth in Section 2.1(f) of the
------------------
Disclosure Schedule, since December 31, 1995, the Company has been operated in
the ordinary course consistent with past practice and there has not been:
(i) any material adverse change in its condition (financial or
otherwise), assets, liabilities, operations, customer contracts or other
customer arrangements, management personnel, ▇▇▇▇▇▇▇▇, revenues, earnings
or business;
(ii) any obligation or liability (whether absolute, accrued,
contingent or otherwise, and whether due or to become due) incurred by the
Company, other than liabilities incurred in the ordinary course of business
and consistent with past practice (including obligations under customer
contracts and current obligations);
(iii) any payment, discharge or satisfaction of any claim or
obligation of the Company, except in the ordinary course of business and
consistent with past practice;
(iv) any declaration, setting aside or payment of any dividend or
other distribution with respect to any shares of capital stock of the
Company or any direct or indirect redemption, purchase or other acquisition
of any such shares;
(v) any issuance or sale, or any contract entered into for the
issuance or sale, of any shares of capital stock or securities convertible
into or exercisable for shares of capital stock of the Company;
(vi) any sale, assignment, pledge, encumbrance, transfer or other
disposition of any tangible asset of the Company, or any sale, assignment,
transfer or other disposition of any patents, trademarks, service marks,
trade names, copyrights, licenses, franchises, know-how or any other
intangible assets of the Company, other than in the ordinary course of
business, consistent with past practice;
(vii) any creation of any claim or other encumbrance on any property
of the Company;
(viii) any write-down of the value of any asset or inventory of the
Company or any write-off as uncollectible of any accounts or notes
receivable or any portion thereof, in either case, in excess of $25,000 in
the aggregate;
(ix) any cancellation of any debts or claims or any amendment,
termination or waiver of any rights of value to the Company in excess of
$25,000 in the aggregate;
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(x) any capital expenditure or commitment or addition to property,
plant or equipment of the Company in excess of $25,000 in the aggregate;
(xi) any general increase in the compensation of employees of the
Company (including any increase pursuant to any bonus, pension, profit-
sharing or other benefit or compensation plan, policy or arrangement or
commitment), or any increase in any such compensation or bonus payable to
any officer, shareholder, director, consultant or agent of the Company
having an annual salary or remuneration in excess of $40,000;
(xii) any material damage, destruction or loss (whether or not
covered by insurance) affecting any asset or property of the Company with a
current book value in excess of $5,000;
(xiii) any change in the independent public accountants of the
Company or in the accounting methods or accounting practices followed by
the Company or any change in depreciation or amortization policies or
rates;
(xiv) any agreement or action not otherwise referred to in items
(i) through (xiii) above entered into or taken that is material to the
Company; or
(xv) any agreement, whether in writing or otherwise, to take any of
the actions specified in the foregoing items (i) through (xiv).
(g) Assets, Property and Related Matters; Real Property. (i) Except as
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set forth in Section 2.1(g)(i) of the Disclosure Schedule, the Company has good
title to, or a valid leasehold interest in, as applicable, all of the assets
reflected on the financial statements contained in Section 2.1(e) of the
Disclosure Schedule, free and clear of all mortgages, liens, pledges, charges or
encumbrances of any kind. Such assets (A) are in generally good operating
condition and repair, subject to ordinary wear and tear and (B) constitute all
of the properties, interests, assets and rights held for use or used in
connection with the business of the Company and constitute all those necessary
to continue to operate the business of the Company consistent with current and
historical practice. All items of personal property owned by the Company with a
current book value in excess of $5,000 are listed in Section 2.1(g)(i) of the
Disclosure Schedule.
(ii) Section 2.1(g)(ii) of the Disclosure Schedule sets forth a list and
brief description of all real property and of all personal property owned or
leased by the Company together with a brief description of (A) all buildings and
other structures and material improvements located on such real property, (B)
the use to which such property is being employed or, if not in use, for which it
was intended, (C) the name of the lessor and requirement of consent of the
lessor to an assignment of the Company's rights as lessee and (D) the
termination date or notice requirement with respect to termination, annual
rental and renewal or purchase options under such leases. The Company does not
own any real property. With respect to property leased by the Company, (I) the
Company is the owner and holder of all the leasehold interests and estates
purported to be granted by such leases, (II) all leases to which the Company
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is a party are in full force and effect and constitute valid and binding
obligations of the Company and, to the knowledge of the Company, of the other
parties thereto, are enforceable in accordance with their terms, except insofar
as the enforceability thereof may be limited by (x) applicable bankruptcy,
insolvency, receivership, moratorium, and other similar laws affecting the
rights of creditors generally, or (y) general principles of equity regardless of
whether asserted in a proceeding in equity or at law, and (III) the Company has
made available to Parent true and complete copies of all written leases and a
written summary of the terms of all oral leases referred to in Section
2.1(g)(ii) of the Disclosure Schedule. There exists no default, or any event
which upon notice or the passage of time, or both, would give rise to any
default, in the performance by the Company or, to the knowledge of the Company,
by any lessor under any lease. The Company has not, and to the knowledge of the
Company, no other person has, granted any oral or written right to anyone other
than the Company to lease, sublease or otherwise occupy any of the properties
described in Section 2.1(g)(ii) of the Disclosure Schedule through the end of
the applicable lease periods.
(iii) To the knowledge of the Company, the real estate listed in Section
2.1(g)(ii) of the Disclosure Schedule and all appurtenances and improvements, as
used, constructed or maintained by the Company at any time, conform in all
material respects to applicable Federal, state, local and foreign laws and
regulations. To the knowledge of the Company, the use of the buildings and
structures located on such real property or any appurtenances or equipment does
not violate any restrictive covenants or encroach on any property owned by
others. No condemnation proceeding is pending or, to the knowledge of the
Company, threatened which would preclude or impair the use of any such property
by the Company for the uses for which they are intended.
(h) Patents, Trademarks and Similar Rights. The Company owns or licenses
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all patents, trademarks, service marks, trade names and copyrights, in each case
registered or unregistered, inventions, software (including documentation and
object and source code listings), know-how, trade secrets and other intellectual
property rights (collectively, the "Intellectual Property") used in its business
as presently conducted. Section 2.1(h) of the Disclosure Schedule contains a
list of all Intellectual Property owned and used by the Company and any
Intellectual Property which is licensed for use by others. To the knowledge of
the Company, no Intellectual Property infringes any rights owned or held by any
other person. There is no pending or, to the knowledge of the Company,
threatened claim or litigation against the Company contesting its right
exclusively to use any Intellectual Property. To the knowledge of the Company,
no person is infringing the rights of the Company in any Intellectual Property.
To the knowledge of the Company, no product or service sold by the Company
violates or infringes any intellectual property right owned or held by any other
person. To the knowledge of the Company, in the case of commercially available
"shrink-wrap" software programs (such as Lotus 1-2-3), neither the Company nor
any of its employees has made or is using any unauthorized copies of any such
software programs at any Company location.
(i) Insurance. Section 2.1(i) of the Disclosure Schedule contains a true
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and complete list of all policies of casualty, liability, theft, fidelity, life
and other forms of insurance
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held by the Company. True and complete copies of such policies have been
delivered to Parent. All insurance policies are in the name of the Company,
outstanding and in full force and effect, all premiums with respect to such
policies are currently paid and such policies will not be affected by, or
terminated or lapse by reason of, the transactions contemplated by this
Agreement. The Company has not received notice of cancellation or termination of
any such policy, nor has it been denied or had revoked or rescinded any policy
of insurance, nor borrowed against any such policies. No claim under any such
policy is pending.
(j) Agreements, Etc. Section 2.1(j) of the Disclosure Schedule contains
---------------
a true and complete list of all written or oral contracts, agreements and other
instruments to which the Company is a party (i) relating to indebtedness for
money borrowed or capital leases, (ii) of duration of six months or more from
the date hereof and not cancelable without penalty on 30 days or less notice,
(iii) relating to commitments in excess of $10,000, (iv) relating to the
employment or compensation of any director, officer, employee, consultant or
other agent of the Company, (v) relating to the sale or other disposition of any
assets, properties or rights, (vi) relating to the lease or similar arrangement
of any machinery, equipment, motor vehicles, furniture, fixture or similar
property, (vii) between the Company and any shareholder of the Company or
affiliates of any shareholder of the Company, (viii) that restricts the
operation of the Company anywhere in the world or (ix) that is otherwise
material to the Company or entered into other than in the ordinary course of
business. The Company is not in default under any such agreement or instrument
where such default could, singly or in the aggregate with defaults under other
agreements or instruments, have a material adverse effect on the business,
operations or condition of the Company (a "Company Adverse Effect"), and, to the
knowledge of the Company, all such agreements or instruments are in full force
and effect. The Sellers have furnished to Parent true and complete copies of all
documents described in Section 3.1(j) of the Disclosure Schedule.
(k) Litigation, Etc. Except as set forth in Section 2.1(k) of the
---------------
Disclosure Schedule, there have not been for the past five years, nor are there,
any suits, actions, claims, investigations or legal or administrative or
arbitration proceedings in respect of the Company, pending or, to the knowledge
of the Company, threatened, whether at law or in equity, or before or by any
Federal, foreign, state or municipal or other governmental department,
commission, board, bureau, agency or instrumentality. There have not been for
the past five years, nor are there, any judgments, decrees, injunctions or
orders of any court, governmental department, commission, agency,
instrumentality or arbitrator against the Company or any of its assets or
properties.
(l) Compliance; Governmental Authorizations. (i) The Company has
---------------------------------------
complied and is in compliance with all Federal, state, local and foreign laws,
ordinances, regulations, interpretations and orders (including those relating to
disposal of materials, environmental protection and occupational safety and
health) applicable to the Company. The Company has all Federal, state, local and
foreign governmental licenses and permits necessary to conduct its business as
presently being conducted, which licenses and permits are set forth in Section
2.1(l) of the Disclosure Schedule. Such licenses and permits are in full force
and effect, no violations are
-9-
or have been recorded in respect of any thereof, no proceeding is pending or, to
the knowledge of the Company, threatened, to revoke or limit any thereof, and
the Company does not know of any basis for any such proceeding.
(ii) There are no conditions relating to the Company or relating to the
Company's ownership, use or maintenance of any real property previously owned or
operated by the Company or any of its present or past affiliates, and the
Sellers do not know or have reason to know of any such condition in respect of
such real property not related to the ownership, use or maintenance, that could
lead to any liability for violation of any Federal, state, county or local laws,
regulations, orders or judgments relating to pollution or protection of the
environment or any other applicable environmental, health or safety statutes,
ordinances, orders, rules, regulations or requirements. The Company has
received, handled, used, stored, treated, shipped and disposed of all hazardous
or toxic materials, substances and wastes (whether or not on its properties or
properties owned or operated by others) in compliance with all applicable
environmental, health or safety statutes, ordinances, orders, rules, regulations
or requirements.
(m) Labor Relations; Employees. (i) Within the last five years, the
--------------------------
Company has not experienced any labor disputes with, or any work stoppages by, a
group of employees due to labor disagreements and, to the knowledge of the
Company, there is no such dispute or work stoppage threatened against the
Company. No employee of the Company is represented by any union or collective
bargaining agent and, to the knowledge of the Company, there has been no union
organizational effort in respect of any employees of the Company within the past
five years.
(ii) Section 2.1(m)(ii) of the Disclosure Schedule contains a list of
each pension, retirement, savings, deferred compensation, and profit-sharing
plan and each stock option, stock appreciation, stock purchase, performance
share, bonus or other incentive plan, severance plan, health, group insurance or
other welfare plan, or other similar plan and any "employee benefit plan" within
the meaning of Section 3(3) of the Employee Retirement Income Security Act of
1974 ("ERISA"), under which the Company has any current or future obligation or
liability or under which any employee or former employee (or beneficiary of any
employee or former employee) of the Company has or may have any current or
future right to benefits (the term "plan" shall include any contract, agreement,
policy or understanding, each such plan being hereinafter referred to
individually as a "Plan"). The Company has delivered to Parent true and complete
copies of (A) each Plan, (B) the summary plan description for each Plan and (C)
the latest annual report, if any, which has been filed with the IRS for each
Plan. Each Plan intended to be tax qualified under Sections 401(a) and 501(a) of
the Internal Revenue Code of 1986 (the "Code") has been determined by the IRS to
be tax qualified under Sections 401(a) and 501(a) of the Code and, since such
determination, no amendment to or failure to amend any such Plan adversely
affects its tax qualified status. There has been no prohibited transaction
within the meaning of Section 4975 of the Code and Section 406 of Title I of
ERISA with respect to any Plan.
(iii) No Plan is subject to the provisions of Section 412 of the Code or
Part 3 of Subtitle B of Title I of ERISA. No Plan is subject to Title IV of
ERISA. During the past five
-10-
years, neither the Company nor any business or entity controlling, controlled
by, or under common control with the Company contributed to or was obliged to
contribute to an employee pension plan that was subject to Title IV of ERISA.
(iv) There are no actions, claims, lawsuits or arbitrations (other than
routine claims for benefits) pending, or, to the knowledge of the Company,
threatened, with respect to any Plan or the assets of any Plan, and the Company
has no knowledge of any facts which could give rise to any such actions, claims,
lawsuits or arbitrations (other than routine claims for benefits). The Company
has satisfied all funding, compliance and reporting requirements for all Plans.
With respect to each Plan, the Company has paid all contributions (including
employee salary reduction contributions) and all insurance premiums that have
become due and any such expense accrued but not yet due has been properly
reflected in the financial information in Section 2.1(e) of the Disclosure
Schedule.
(v) Except as described in Section 2.1(m)(ii) of the Disclosure
Schedule, no Plan provides or is required to provide, now or in the future,
health, medical, dental, accident, disability, death or survivor benefits to or
in respect of any person beyond termination of employment, except to the extent
required under any state insurance law or under Part 6 of Subtitle B of Title I
of ERISA and under Section 4980(B) of the Code. No Plan covers any individual
other than an employee of the Company, other than dependents of employees under
health and child care policies listed in Section 3.1(m)(ii) of the Disclosure
Schedule and delivered to Parent.
(vi) The consummation of the transactions contemplated by this Agreement
will not (A) entitle any employee of the Company to severance pay or termination
benefits for which Parent or any of its affiliates may become liable, (B)
accelerate the time of payment or vesting, or increase the amount of
compensation due to any such employee or former employee for which Parent or any
of its affiliates may become liable or (C) obligate Parent or any of its
affiliates to pay or otherwise be liable for any compensation, vacation days,
pension contribution or other benefits to any employee, consultant or agent of
the Company for periods before the Closing Date (other than any compensation,
vacation, pension contribution or other similar benefit owed or accrued by the
Company in the ordinary course of business) or for personnel whom Parent does
not actually employ.
(vii) The Company has made no representations or warranties (whether
written or oral, express or implied) contractually or otherwise to any client or
customer of the Company that Company's employees rendering services to such
client or customer are not "leased employees" (within the meaning of Section
414(n) of the Code) or that such employees would not be required to participate
under any pension benefit plan (within the meaning of Section 3(2) of ERISA) (a
"Pension Benefit Plan") of such client or customer of the Company relating
either to (A) providing benefits to employees of the Company under a Pension
Benefit Plan of the Company or (B) making contributions to or reimbursing such
client or customer for any contributions made to a Pension Benefit Plan of such
client or customer on behalf of employees of the Company.
-11-
(n) Accounts Receivable. Section 2.1(n) of the Disclosure Schedule
-------------------
contains a true aged list of unpaid accounts and notes receivable owing to the
Company as of December 31, 1996, all of which, to the Company's knowledge, are
collectible in the ordinary course of business.
(o) Customers. Section 2.1(o) of the Disclosure Schedule contains (i) a
---------
true and complete list of the customers of the Company for each of the years
ended December 31, 1994, 1995 and 1996 and, as of the date hereof, any additions
or deletions of customers from December 31, 1996 to the date of this Agreement,
(ii) a true and correct description of the effective date and expiration date
and history of renewals for and revenue generated under contracts with each of
the customers of the Company listed on Section 2.1(o) of the Disclosure
Schedule, (iii) a true and complete list of all contracts pursuant to which the
Company provides goods or services to its customers (the "Client Contracts") and
(iv) a true and correct description of (A) the terms and conditions of each
verbal Client Contract, (B) any and all disputes or defaults arising under or
with respect to the Client Contracts which could reasonably be expected to
result in a client's termination of its contract with the Company or claim for
damages, and (C) all loans or advances made by the Company to or on behalf of
its customers, which description includes the date of such loan or advance and
the principal balance outstanding as of the date of this Agreement under each
such loan or advance. To the Company's knowledge, the Client Contracts are valid
and enforceable in accordance with their respective terms with respect to the
Company, and are valid and enforceable in accordance with their respective terms
with respect to any other party thereto, in each case, except insofar as the
enforceability thereof may be limited by (i) applicable bankruptcy, insolvency,
receivership, moratorium, and other similar laws affecting the rights of
creditors generally, or (ii) general principles of equity regardless of whether
asserted in a proceeding in equity or at law. To the Company's knowledge, no
customer of the Company intends to terminate, fail to renew or adversely modify
any relationship with the Company.
(p) Accounts Payable. Section 2.1(p) of the Disclosure Schedule contains
----------------
a true and complete list of all accounts payable of the Company as of December
31, 1996.
(q) Related Party Transactions. Except as set forth in Section 2.1(q) of
--------------------------
the Disclosure Schedule, no current or former partner, director, officer,
employee or shareholder of the Company or any associate or affiliate (as defined
in the rules promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) thereof, or any relative with a relationship of not more
remote than first cousin of any of the foregoing, is presently, or during the
12-month period ending on the date hereof has been, (i) a party to any
transaction with the Company (including, but not limited to, any contract,
agreement or other arrangement providing for the furnishing of services by, or
rental of real or personal property from, or otherwise requiring payments to,
any such director, officer, employee or shareholder or such associate) or (ii)
to the knowledge of the Company, the direct or indirect owner of an interest in
any corporation, firm, association or business organization which is a present
(or potential) competitor, supplier or customer of the Company, nor does any
such person receive income from any source other than the Company which relates
to the Company's business or should properly accrue to the Company.
-12-
(r) Billing and Collection Practices. (i) The current practices and
--------------------------------
procedures of the Company with respect to (A) billing on behalf of customers,
(B) receiving and processing Medicare and Medicaid payments due to customers,
(C) holding and transfer of such payments and (D) the method of determining and
collecting the fees received by the Company for services provided by providers
and physicians participating in the Medicare or Medicaid programs are not in
violation of the restriction on assignment as set forth in 42 U.S.C. Section
1395g(c), 42 U.S.C. Section 1395u(b)(6) and 42 U.S.C. Section 1396(a)(32), and
the regulations promulgated thereunder or similar provisions of any state
Medicaid program.
(ii) The Company is not engaged in any activity, whether alone or in
concert with one or more of its clients, which would constitute a violation of
any Federal laws or of the laws of any state where the Company does business or
otherwise applicable to the Company (including (A) Federal antifraud and abuse
or similar laws pertaining to Medicare, Medicaid, or any other Federal health or
insurance program, (B) state laws pertaining to Medicaid or any other state
health or insurance program, (C) state or Federal laws pertaining to ▇▇▇▇▇▇▇▇ to
insurance companies, health maintenance organizations, and other managed care
plans or to insurance fraud, and (D) Federal and state laws relating to
collection agencies and the performance of collection services) prohibiting
fraudulent, abusive or unlawful practices connected in any way with the
provision of health care services, the billing for such services provided to a
beneficiary of any state, Federal or private health or insurance program or
credit collection services. Without limiting the generality of the foregoing,
the Company has not, directly or indirectly, paid, offered to pay or agreed to
pay, or solicited or received, any fee, commission, sum of money, property or
other remuneration to or from any person which the Company knows or has reason
to believe to have been illegal under 42 U.S.C. Section 1320a-7b(b) or any
similar state law.
(s) Tax Matters. The Company is a "small business corporation" and has
-----------
maintained a valid election to be an "S" corporation under Subchapter S of the
Code, and the equivalent provisions of all applicable state income tax statutes
since January 5, 1990. All Federal, state, local and foreign tax returns and tax
reports for periods ending on or prior to the Closing Date by the Company have
been or will be filed, or a valid request for extension has been or will be
filed with respect thereto, on a timely basis (including any extensions) with
the appropriate governmental agencies in all jurisdictions in which such returns
and reports are required to be filed. All such returns and reports are and will
be true, correct and complete in all material respects. All Federal, state,
local and foreign income, profits, franchise, sales, use, occupation, property,
excise, employment and other taxes (including interest, penalties and
withholdings of tax) due from and payable by the Company on or prior to the
Closing Date have been fully paid on a timely basis. The Company is not
currently the beneficiary of any extension of time within which to file any tax
return. Except as set forth in Section 2.1(s) of the Disclosure Schedule, no
claim has ever been made in writing by an authority in a jurisdiction where the
Company does not file tax returns that it is or may be subject to taxation by
that jurisdiction. No issues have been raised in writing by the Internal Revenue
Service (the "IRS") or any other taxing authority in connection with any tax
return or report filed by the Company and there are no issues which, either
individually or in the aggregate, could result in any liability for tax
obligations of the
-13-
Company relating to periods ending on or before December 31, 1996 in excess of
the accrued liability for taxes shown on the financial statements contained in
Section 2.1(e) of the Disclosure Schedule. No waivers of statutes of limitations
have been given or requested with respect to the Company. No material
differences exist between the amounts of the book basis and the tax basis of
assets that are not accounted for by an accrual on the books of the Company for
Federal income tax purposes. The Company is not required to include in income
any adjustment pursuant to Section 481(a) of the Code by reason of a voluntary
change in accounting method initiated by the Company, and the IRS has proposed
no adjustment or change in accounting method. The Company is not a party to any
agreement, contract or arrangement that would result, separately or in the
aggregate, in the payment of any "excess parachute payments" within the meaning
of Section 280G of the Code. All transactions or methods of accounting that
could give rise to an understatement of Federal income tax (within the meaning
of Section 6661 of the Code for tax returns filed on or before December 31,
1990, and within the meaning of Section 6662 of the Code for tax returns filed
after December 31, 1990) have been adequately disclosed on the tax returns in
accordance with Section 6661(b)(2)(B) of the Code for tax returns filed on or
prior to December 31, 1990, and in accordance with Section 6662(d)(2)(B) of the
Code for tax returns filed after December 31, 1990. The Company is not and has
not been a United States real property holding corporation (as defined in
Section 897(c)(2) of the Code) during the applicable period specified in Section
897(c)(1)(ii) of the Code. The Company has complied (and until the Closing will
comply) with all applicable laws relating to the payment and withholding of
taxes (including withholding and reporting requirements under Section 1441
through 1464, 3401 through 3406, 6041 and 6049 of the Code and similar
provisions under any other laws) and, within the time and in the manner
prescribed by law, has withheld from wages, fees and other payments and paid
over to the proper governmental or regulatory authorities all amounts required.
No indebtedness of the Company is "corporate acquisition indebtedness" within
the meaning of Section 279(b) of the Code. The Company has not at any time
consented to have the provisions of Section 341(f)(2) of the Code apply to it.
(t) Disclosure. There have been no events, transactions or information
----------
relating to the Company which have come to the attention of the Company which
could reasonably be expected to have a material adverse effect on the condition
(financial or otherwise), assets, liabilities, operations, customer contracts or
other customer arrangements management personnel, ▇▇▇▇▇▇▇▇, revenues, earnings,
business or prospects of the Company, other than general events prevailing
throughout the medical billing services industry which similarly affect firms
that directly compete in such industry. To the Company's knowledge, no
representation or warranty of the Sellers contained in this Agreement, and no
statement contained in any certificate, schedule, annex, list or other writing
furnished to Parent, contains any untrue statement of a material fact or omits
to state a material fact necessary to make the statements contained herein or
therein not misleading.
(u) Bank Accounts; Powers-of-Attorney. (i) Section 2.1(u) of the
---------------------------------
Disclosure Schedule contains a true and complete list of (A) all bank accounts
and safe deposit boxes of the Company and all persons who are signatories
thereunder or who have access thereto and (B) the
-14-
names of all persons holding general or special powers-of-attorney from the
Company and a summary of the terms thereof.
(ii) The Company has at all times held all customer funds in escrow or
custody accounts with the banking institutions listed in Section 3.1(u) of the
Disclosure Schedule and has maintained adequate accounting and security measures
to ensure the proper collection, maintenance and disbursement of such funds. To
the Company's knowledge, there have been no improper withdrawals or uses of
customer funds held in such accounts.
(v) Brokers. Except as set forth in Section 2.1(v) of the Disclosure
-------
Schedule, no agent, broker, investment banker, person or firm acting on behalf
of the Company or any stockholder of the Company or under the authority of the
Company or any stockholder of the Company is or will be entitled to any broker's
or finder's fee or any other commission or similar fee directly or indirectly
from any of the parties hereto in connection with any of the transactions
contemplated hereby.
SECTION 2.2. Representations and Warranties of Subsidiary and Parent.
-------------------------------------------------------
Subsidiary and Parent jointly and severally represent and warrant to the Sellers
as follows:
(a) Organization, Standing and Power. Parent is a corporation duly
--------------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite corporate power and authority to own, lease and
operate its properties and to carry on its business as now being conducted.
Parent is duly qualified to do business and is in good standing in each
jurisdiction in which such qualification is necessary because of the property
owned, leased or operated by it or because of the nature of its business as now
being conducted. Parent has provided the Sellers with complete and correct
copies of its Certificate of Incorporation and By-Laws.
(b) Authority; Binding Agreements. The execution and delivery of this
-----------------------------
Agreement and the consummation of the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate action on the part of
Parent. Parent has all requisite corporate power and authority to enter into
this Agreement and to consummate the transactions contemplated hereby and has
duly executed and delivered this Agreement. This Agreement constitutes a valid
and binding obligation of Parent, enforceable against Parent in accordance with
its terms.
(c) Conflicts; Consents. The execution and delivery of this Agreement,
-------------------
the consummation of the transactions contemplated hereby and compliance by
Parent and Subsidiary with the other provisions hereof do not and will not (i)
conflict with or result in a breach of the charter, by-laws or other
constitutive documents of Parent or Subsidiary, (ii) conflict with or result in
a default (or give rise to any right of termination, cancellation or
acceleration) under any of the provisions of any note, bond, lease, mortgage,
indenture, or any material license, franchise, permit, agreement or other
instrument or obligation to which Parent or Subsidiary is a party, or by which
Parent or Subsidiary or Parent's or Subsidiary's properties or assets, may be
bound or
-15-
affected, except for such conflict, breach or default as to which requisite
waivers or consents shall be obtained before the Closing, or (iii) violate any
law, statute, rule or regulation or order, writ, injunction or decree applicable
to Parent or Subsidiary or Parent's or Subsidiary's properties or assets, except
for any such violations that are immaterial to Parent and Subsidiary and
Parent's and Subsidiary's properties and assets. No consent or approval by, or
any notification of or filing with, any person is required in connection with
the execution, delivery and performance by Parent or Subsidiary of this
Agreement or the consummation of the transactions contemplated hereby, except
for (i) the filing with the SEC such reports under Sections 13 and 16 of the
Exchange Act, as may be required in connection with this Agreement and the
transactions contemplated hereby and (ii) such filings as may be required under
state securities or "blue sky" laws in connection with the issuance of the PSS
Common Stock.
(d) Capitalization. The authorized capital stock of Parent consists of
--------------
100,000,000 shares of PSS Common Stock and 10,000,000 shares of preferred stock.
At the close of business on January 28, 1997, (i) 9,156,101 shares of PSS Common
Stock were issued and outstanding, (ii) no shares of PSS Common Stock were held
by Parent in its treasury, (iii) 571,748 shares of PSS Common Stock were
reserved for issuance upon exercise of outstanding employee stock options to
purchase shares of PSS Common Stock, (iv) 385,752 shares of PSS Common Stock
were reserved for issuance upon exercise of employee stock options that are not
outstanding but may be issued in the future under Parent's 1996 Stock Option
Plan and (v) 2,250 shares of PSS Common Stock were reserved for issuance upon
exercise of employee stock options that are not outstanding but may be issued in
the future under Synergistic Systems, Inc.'s 1996 Stock Option Plan. Except as
set forth above, at the time of execution of this Agreement, no shares of
capital stock or other voting securities of Parent are issued, reserved for
issuance or outstanding. All outstanding shares of capital stock of Parent are,
and all shares which may be issued pursuant to this Agreement will be, when
issued, duly authorized, validly issued, fully paid and nonassessable and not
subject to preemptive rights. There are no bonds, debentures, notes or other
indebtedness or securities of Parent having the right to vote (or convertible
into, or exchangeable for, securities having the right to vote) on any matters
on which stockholders of Parent may vote. Except as set forth above, as of the
date of this Agreement, there are no outstanding securities, options, warrants,
calls, rights, commitments, agreements, arrangements or undertakings of any kind
to which Parent or any of its subsidiaries is a party or by which any of them is
bound obligating Parent or any of its subsidiaries to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of capital stock or
other voting securities of Parent or of any of its subsidiaries or obligating
Parent or any of its subsidiaries to issue, grant, extend or enter into any such
security, option, warrant, call, right, commitment, agreement, arrangement or
undertaking. There are no outstanding commitments, agreements, arrangements or
undertakings of any kind obligating Parent or any of its subsidiaries to
repurchase, redeem or otherwise acquire any shares of capital stock or other
voting securities of Parent or any of its subsidiaries. As of the date of this
Agreement, the authorized capital stock of Subsidiary consists of 1,000 shares
of common stock, par value $.01 per share, all of which have been validly
issued, are fully paid and nonassessable and are owned by Parent free and clear
of any liens.
-16-
(e) SEC Documents; Financial Statements; No Undisclosed Liabilities.
---------------------------------------------------------------
Parent has filed all required reports, forms and other documents with the SEC
upon and since the effectiveness of Parent's Registration Statement on Form S-1
for the initial public offering of Parent Common Stock on February 12, 1996 (the
"Parent SEC Documents"). As of their respective dates, the Parent SEC Documents
complied in all material respects with the requirements of the Securities Act of
1933, as amended (the "Securities Act"), or the Exchange Act, as the case may
be, and the rules and regulations of the SEC promulgated thereunder applicable
to such Parent SEC Documents, and none of the Parent SEC Documents contained any
untrue statement of a material fact or omitted to state a material fact required
to be state therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
financial statements of Parent included in the Parent SEC Documents comply as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with generally accepted accounting principles (except, in
the case of unaudited statements, as permitted by Form 10-Q of the SEC) applied
on a consistent basis during the periods involved and fairly present the
consolidated financial position of Parent and its consolidated subsidiaries as
of the dates thereof and the consolidated results of their operations and cash
flows for the periods then ended (subject, in the case of unaudited statements,
to normal and recurring year-end audit adjustments not material in scope or
amount). Except as set forth in the Parent Filed SEC Documents (defined in
Section 3.2(f)), neither Parent nor any of its subsidiaries has any material
liabilities or obligations required by generally accepted accounting principles
to be recognized or disclosed on a consolidated balance sheet of Parent and its
consolidated subsidiaries or in the notes thereto and which, individually or in
the aggregate, could reasonably be expected to have a material adverse effect on
Parent and its subsidiaries taken as a whole.
(f) Absence of Certain Changes or Events. Except as disclosed in the
------------------------------------
Parent SEC Documents filed and publicly available prior to the date of this
Agreement (the "Parent Filed SEC Documents"), since September 30, 1996, there
has not been any material adverse change in Parent and its subsidiaries taken as
a whole.
(g) Litigation, Etc. Except as disclosed in the Parent Filed SEC
---------------
Documents, there are no suits, actions, claims, investigations or legal or
administrative or arbitration proceedings in respect of Parent or any of its
subsidiaries, pending or, to the knowledge of Parent, threatened, whether at law
or in equity, or before or by any Federal, foreign, state or municipal or other
governmental department, commission, board, bureau, agency or instrumentality
that, individually or in the aggregate, could reasonably be expected to have a
material adverse effect on Parent and its subsidiaries taken as a whole.
(h) Compliance; Governmental Authorizations. Except as disclosed in the
---------------------------------------
Parent Filed SEC Documents, Parent has complied and is in compliance in all
material respects with all Federal, state, local and foreign laws, ordinances,
regulations, interpretations and order (including those relating to disposal of
materials, environmental protection and occupational safety and health)
applicable to Parent. Parent has all Federal, state, local and foreign
governmental licenses
-17-
and permits necessary to conduct its business as presently being conducted. Such
licenses and permits are in full force and effect, no violations are or have
been recorded in respect of any thereof, no proceeding is pending, or, to the
knowledge of Parent, threatened, to revoke or limit any thereof, and the Seller
does not know of any basis for any such proceeding.
(i) Brokers. Except for ▇▇▇▇▇▇▇▇ Financial, the fees and expenses of
-------
which shall be paid by Parent, no agent, broker, investment banker, person or
firm acting on behalf of Parent or Subsidiary or under the authority of Parent
or Subsidiary is or will be entitled to any broker's or finder's fee or any
other commission or similar fee directly or indirectly from any of the parties
hereto in connection with any of the transactions contemplated hereby.
(j) Billing and Collection Practices. (i) The current practices and
--------------------------------
procedures of Parent with respect to (A) billing on behalf of customers, (B)
receiving and processing Medicare and Medicaid payments due to customers, (C)
holding and transfer of such payments and (D) the method of determining and
collecting the fees received by Parent for services provided by providers and
physicians participating in the Medicare or Medicaid programs are not in
violation of the restriction on assignment as set forth in 42 U.S.C. Section
1395g(c), 42 U.S.C. Section 1395u(b)(6) and 42 U.S.C. Section 1396(a)(32), and
the regulations promulgated thereunder or similar provisions of any state
Medicaid program, except where such violations, singly or in the aggregate,
would not have a material adverse effect on the business, operations or
condition of Parent (a "Parent Adverse Effect").
(ii) Parent is not engaged in any activity, whether alone or in concert
with one or more of its clients, which would constitute a violation of any
Federal laws or of the laws of any state where Parent does business or otherwise
applicable to Parent (including (A) Federal antifraud and abuse or similar laws
pertaining to Medicare, Medicaid, or any other Federal health or insurance
program, (B) state laws pertaining to Medicaid or any other state health or
insurance program, (C) state or Federal laws pertaining to ▇▇▇▇▇▇▇▇ to insurance
companies, health maintenance organizations, and other managed care plans or to
insurance fraud, and (D) Federal and state laws relating to collection agencies
and the performance of collection services) prohibiting fraudulent, abusive or
unlawful practices connected in any way with the provision of health care
services, the billing for such services provided to a beneficiary of any state,
Federal or private health or insurance program or credit collection services,
except where such violations, singly or in the aggregate, would not have a
Parent Adverse Effect. Without limiting the generality of the foregoing, Parent
has not, directly or indirectly, paid, offered to pay or agreed to pay, or
solicited or received, any fee, commission, sum of money, property or other
remuneration to or from any person which Parent knows or has reason to believe
to have been illegal under 42 U.S.C. Section 1320a-7b(b) or any similar state
law.
-18-
ARTICLE III
Additional Agreements
---------------------
SECTION 3.1. Expenses. Each of Parent and Subsidiary shall pay its
--------
own fees, costs and expenses incurred in connection with this Agreement and the
transactions contemplated by this Agreement, including, without limitation, the
fees, costs and expenses of its financial advisors, accountants and counsel. The
Purchase Price reflects an adjustment for the Sellers' and the Company's fees,
costs and expenses set forth in Schedule 3.1 of the Disclosure Schedule. Sellers
shall pay their own and the Company's fees, costs and expenses incurred in
connection with this Agreement and the transactions contemplated by this
Agreement, including, without limitation, the reasonable fees, costs and
expenses of their financial advisors, accountants and counsel, if any, which are
not included in the fees, costs and expenses set forth in Schedule 3.1 of the
Disclosure Schedule.
SECTION 3.2. Conduct of Business. (a) From the date hereof until the
-------------------
Closing Date, except as otherwise consented to by Parent in writing, Sellers
shall cause the Company to operate its business only in the ordinary course of
business consistent with past practice.
(b) Without limiting the generality of the foregoing, Sellers shall
prohibit the Company, without the prior written consent of Parent, directly or
indirectly, to cause or permit any state of affairs, action or omission
described in clauses (i) through (xv) of Section 2.1(f).
SECTION 3.3. Further Assurances. Each of the parties hereto agrees to
------------------
use all commercially reasonable efforts to take, or cause to be taken, all
action, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations, to consummate and make
effective the transactions contemplated by this Agreement as expeditiously as
practicable and to ensure that the conditions set forth in Article IV hereof are
satisfied, insofar as such matters are within the control of any of them. In
case at any time after the Closing Date, any further action is necessary or
desirable to carry out the purposes of this Agreement, each of the parties to
this Agreement shall take or cause to be taken all such necessary action,
including the execution and delivery of such further instruments and documents,
as may be reasonably requested by any party for such purposes or otherwise to
complete or perfect the transactions contemplated hereby.
SECTION 3.4. No Shopping. From the date hereof until the earlier of (i)
-----------
the Closing Date and (ii) the date this Agreement is terminated in accordance
with Section 6.2, no Seller shall, and no Seller shall permit the Company or any
partner, director, officer or agent of the Company to, directly or indirectly,
solicit or initiate, enter into or conduct, discussions concerning, or exchange
information (including by way of furnishing information concerning the Company
or its business) or enter into any negotiations concerning, or respond to any
inquiries or solicit, receive, entertain or agree to any proposals for, the
acquisition of the assets of, or any substantial part thereof, or a merger
involving, the Company or the transfer of all or a substantial part of the
capital stock of the Company to any person other than Parent or one of its
affiliates. In addition, during such time period, no Seller shall authorize,
direct or knowingly permit any
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employee or agent of the Company to do any of the foregoing and Sellers shall
notify Parent of the identity of any person who approaches any Seller or the
Company with respect to any of the foregoing.
SECTION 3.5. Access and Information. From the date hereof until the
----------------------
first to occur of the Closing Date and the termination of this Agreement,
Sellers shall cause the Company to permit Parent and its representatives to make
such investigation of the business, operations and properties of the Company as
Parent deems necessary or desirable in connection with the transactions
contemplated hereby. Such investigation shall include access to the respective
directors, officers, employees, agents and representatives (including legal
counsel and independent accountants) of the Company and the properties, books,
records and commitments of the Company. Sellers shall furnish Parent and its
representatives with such financial, operating and other data and information,
and copies of documents with respect to the Company or any of the transactions
contemplated hereby, as Parent shall from time to time request. Such access and
investigation shall be made upon reasonable notice and at reasonable places and
times. Such access and information shall not in any way affect or diminish any
of the representations or warranties hereunder. Without limiting the foregoing,
during such period, Sellers shall keep Parent informed as to the business and
operations of the Company and shall consult with Parent with respect thereto as
appropriate.
SECTION 3.6. Confidentiality; Non-Competition. (a) Until Closing,
--------------------------------
Parent, Subsidiary and Sellers each agree that all financial or other
information about Parent, the Company or any Seller, or other information of a
confidential or proprietary nature, disclosed to the other at any time in
connection with the proposed transaction shall be kept confidential by the party
receiving such information and shall not be disclosed to any person or used by
the receiving party (other than to its agents or employees or in connection with
the transactions contemplated by this Agreement) except: (i) with the prior
written consent of the disclosing party; (ii) as may be required by applicable
law, court process or by obligations pursuant to any listing agreement with any
national securities exchange (including the Nasdaq National Market); (iii) such
information which may have been acquired or obtained by such party (other than
through disclosure by the other party in connection with the transaction
contemplated by this Agreement); or (iv) such information which is or becomes
generally available to the public other than as a result of a violation of this
provision. Sellers shall be bound by the terms of this paragraph (a) for a
period of five years after Closing.
(b) Each Seller hereby acknowledges and recognizes such parties'
possession of confidential or proprietary information and the highly competitive
nature of the business of the Company and accordingly agrees that, in
consideration of Parent and Subsidiary entering into this Agreement and the
other transactions contemplated hereby and the premises contained herein, such
Seller will not, from and after the date of the Closing for a period of five
years after the date of the Closing, for any reason whatsoever, either
individually or as an officer, director, stockholder, partner, agent or
principal of another business firm, (i) directly or indirectly engage in the
United States in any competitive business (including seeking or accepting
employment with a client of the Company or any of its affiliates), (ii) assist
others in engaging in any competitive business in the manner described in the
foregoing clause (i), (iii) solicit, professionally contact or
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provide medical billing, accounts receivable, accounting, collection agency,
financial or consulting services to any Client Account or (iv) induce employees
of the Company, Parent or any affiliate of Parent to terminate their employment
with the Company, Parent or such affiliate, as the case may be, or hire any
employees of the Company, Parent or any other affiliate of Parent to work with
any Seller or any company or business affiliated with any Seller.
For purposes of this Agreement, "Client Account" means (i) all clients
and/or accounts serviced by the Company, any of its affiliates, any Seller (if
employed by the Company) or the Company's or its affiliates' other employees
during the period of time Sellers have any obligations under this Section
3.6(b), including all clients and/or accounts (if any) acquired by any Seller
due to such Seller's efforts during the term of such Seller's employment (if
any) with the Company or any of its affiliates and (ii) all businesses or
individuals who have been contacted by any Seller or the Company or any of its
affiliates with a view toward having such business or entity retain the Company
or any of its affiliates to provide services or are known to any Seller as a
result of his employment (if any) with the Company.
(c) In the event of a breach or threatened breach by any party of the
provisions of this Section 3.6, the non-breaching party shall be entitled to an
injunction restraining such party from such breach. Nothing contained in this
paragraph (c) or elsewhere in this Agreement shall be construed as prohibiting
the non-breaching party from pursuing any other remedies available at law or
equity for such breach or threatened breach of this Agreement nor limiting the
amount of damages recoverable in the event of a breach or threatened breach by
any party of the provisions of this Section. Without limiting the generality of
the foregoing, Sellers acknowledge that, in the event of a breach or threatened
breach by any Seller of any of the provisions of paragraph (b) of this Section
3.6, Parent's and Subsidiary's damages may exceed the amount paid to Sellers
(singly or in the aggregate) in consideration of their covenants set forth in
such paragraph (b).
SECTION 3.7. Releases; Prior Compensation. Each Seller agrees and
----------------------------
acknowledges that he or she has been paid in full for all services rendered to
the Company prior to the date hereof and has no outstanding claims against the
Company for any amounts arising because of such employment or otherwise. Sellers
hereby release the Company and all of the Company's affiliates from all rights
any Seller may have to acquire any securities of the Company and all actions,
suits, debts, promises, agreements, damages, demands or claims of any kind
whatsoever arising from any event or action prior to the date hereof that any
Seller had, has or may in the future have against the Company, except for the
matters arising under this Agreement or related to the transactions contemplated
hereby.
SECTION 3.8. Nasdaq. Parent shall use its reasonable best efforts to
------
have the PSS Common Stock to be issued to Sellers pursuant to this Agreement
approved for listing on the National Association of Securities Dealers, Inc.
Automated Quotations System (the "Nasdaq National Market"), subject to official
notice of issuance.
SECTION 3.9. Public Announcements. Parent, on the one hand, and Sellers,
--------------------
on the other hand, will consult with each other before issuing, and provide each
other the opportunity to review and comment upon, any press release or other
public statements with respect to the
-21-
transactions contemplated by this Agreement, and shall not issue any such press
release or make any such public statement prior to such consultation, except as
may be required by applicable law, court process or by obligations pursuant to
any listing agreement with any national securities exchange or the Nasdaq
National Market.
SECTION 3.10. Tax Matters. (a) (i) Parent (to the extent necessary),
-----------
Subsidiary and each Seller shall join in making timely and irrevocable elections
under Section 338(h)(10) of the Code and, if permissible, similar elections
under any applicable state or local income tax laws, with respect to the
Company. In such event, each Seller, Parent and Subsidiary shall report the
transaction consistent with such elections under Section 338(h)(10) of the Code
or any similar state or local tax provision (the "Elections") and shall take no
position contrary thereto unless and to the extent required to do so pursuant to
a determination (as defined in Section 1313(a) of the Code or any similar state
or local tax provision). Each Seller agrees that he or she shall pay, and
indemnify the Company and Parent for, any federal, state and local income taxes
resulting from the Elections.
(ii) Each Seller, Parent and Subsidiary shall execute as soon as
practicable after the Closing any and all forms necessary to effectuate the
Elections (including IRS Form 8023-A and any similar forms under state and local
income tax laws that permit an Election similar to that of Section 338(h)(10) of
the Code (the "Section 338 Forms")). Each Seller, Parent and Subsidiary shall
cause the Section 338 Forms to be duly executed by an authorized person and
shall duly and timely file the Section 338 Forms in accordance with applicable
tax laws and the terms of this Agreement.
(iii) Each Seller, Parent and Subsidiary agrees to allocate the
Aggregate Deemed Sale Price (as defined under applicable Treasury Regulations)
of the assets of the Company as set forth in a schedule that will be generated
with the assistance of Deloitte & Touche, Parent's accountants, within 60 days
after the Closing Date, in accordance with the guidelines of the IRS, which
schedule shall reflect an allocation agreed to by the parties. Each Seller,
Parent and Subsidiary will reflect such allocation in all applicable tax returns
filed by any of them, including but not limited to the Section 338 Forms. Each
Seller, Parent and Subsidiary will not take a position before any taxing
authority or otherwise (including in any tax return) inconsistent with such
allocation unless and to the extent required to do so pursuant to a
determination (as defined in Section 1313(a) of the Code or any similar state or
local law).
(b) Sellers shall be responsible for all transfer, excise, stamp, sales,
use, recording or similar taxes or fees arising out of the sale, transfer,
conveyance or assignment of the Shares by Sellers and the transactions
contemplated hereby. Sellers shall make any required filings under applicable
law.
(c) (i) Sellers shall be liable for and shall indemnify Parent and the
Company for taxes of the Company for any taxable years or periods that ends on
or before the Closing Date and, with respect to any taxable years or periods
beginning before and ending after the Closing, the portion of such taxable years
ending on and including the Closing Date.
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(ii) Parent and the Company shall be liable for and shall indemnify
Sellers for taxes of the Company for any taxable years or periods that begins
after the Closing Date and, with respect to any taxable years or periods
beginning before and ending after the Closing, the portion of the taxable years
beginning on the day after the Closing Date.
(iii) For purposes of subparagraphs (c)(i) and (ii) above, whenever it
is necessary to determine the liability for taxes of the Company for a portion
of a taxable year or period that begins before and ends after the Closing Date,
the determination of such taxes for the portion of the year or period ending on,
and the portion of the year or period beginning after, the Closing Date, shall
be determined by assuming that the Company had a taxable year or period which
ended at the close of business on the Closing Date, except that exemptions,
allowances or deductions that are calculated on an annual basis, such as the
deduction for depreciation, shall be apportioned based on the number of days in
the year elapsed to and including the Closing Date.
(d) Any payment by Sellers or Parent under this Section 3.10 will be
treated for tax purposes as an adjustment to the Purchase Price.
(e) Sellers shall cause the Company to file when due all tax returns
that are required to be filed by the Company for taxable years or periods ending
on or before the Closing Date, and Parent shall file or cause to be filed when
due all other tax returns that are required to be filed by or with respect to
the Company.
(f) After the Closing Date, each Seller and Parent shall:
(i) assist in all reasonable respects (and cause their respective
affiliates to assist) the other party in preparing any tax returns or reports
which such other party is responsible for preparing and filing in accordance
with this Section 3.10;
(ii) cooperate (and cause their respective affiliates to cooperate) in
all reasonable respects in preparing for any audits of, or disputes with taxing
authorities regarding, and tax returns of the Company;
(iii) make available to the other (and cause their respective affiliates
to make available) as reasonably requested all information, records and
documents relating to taxes of the Company;
(iv) provide (and cause their respective affiliates to provide) timely
notice to the other in writing of any pending or threatened tax audit or
assessments of any of the Company for taxable periods for which the other may
have a liability under this Section 3.10; and
(v) furnish the other with copies of all correspondence received from
any taxing authority in connection with any tax audit or information request
with respect to any such taxable period.
(g) (i) Parent shall notify Sellers in writing upon receipt by Parent or
any of the Company of notice of any pending or threatened Federal, state, local
or foreign tax audits or
-23-
assessments which may materially affect the tax liabilities of the Company for
which Sellers would be required to indemnify Parent and the Company.
(ii) Sellers shall notify Parent in writing upon receipt by Sellers of
notice of any pending or threatened federal, state, local or foreign tax audits
or assessments which may materially affect the tax liabilities of the Company
for which Parent and the Company would be required to indemnify Sellers.
SECTION 3.11. Obligations of Subsidiary. Parent will take all action
-------------------------
necessary to cause Subsidiary to perform its obligations under this Agreement.
SECTION 3.12. Transition Services. In addition to their obligations
-------------------
under Section 3.3, commencing on the Closing Date and ending on the first
anniversary thereof, each of ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ shall provide
such assistance as Subsidiary or Parent may reasonably request in connection
with the transition of the business of the Company to ownership (direct and
indirect) by Subsidiary and Parent. Such assistance may include assisting
Subsidiary or Parent in locating Company records, advising on the Company's
business practices, communicating with clients of the Company, communicating
with employees and vendors of the Company and modifying the Company's accounting
and information systems.
ARTICLE IV
Conditions Precedent
--------------------
SECTION 4.1. Conditions to Obligations of Parent and Subsidiary. The
--------------------------------------------------
obligations of Parent and Subsidiary to perform this Agreement are subject to
the satisfaction or waiver of the following conditions unless waived by Parent
or Subsidiary:
(a) Authorization. All actions necessary to authorize the execution,
-------------
delivery and performance of this Agreement and the other agreements and
documents to which any Seller is a party as contemplated by this Agreement and
the consummation of the transactions contemplated hereby and thereby shall have
been duly and validly taken by Sellers and Sellers shall have full power and
authority to enter into and deliver such agreements and to consummate the
transactions contemplated hereby and thereby.
(b) Representations and Warranties. The representations and warranties
------------------------------
of Sellers contained herein shall be true and correct in all material respects
as of the date hereof and as of the Closing Date as if made on and as of the
Closing Date, and Sellers shall have performed and complied with all covenants
and agreements required to be performed or complied with on or prior to the
Closing Date. As of the Closing Date, there shall have been no material adverse
change in the condition (financial or otherwise), assets, liabilities,
operations, customer contracts or other customer arrangements, management
personnel, ▇▇▇▇▇▇▇▇, revenues, earnings, business or prospects of the Company.
(c) Consents, Amendments and Terminations. Parent shall have received
-------------------------------------
duly executed and delivered copies of all waivers, consents, terminations and
approvals contemplated
-24-
by Sections 2.1(d) and 2.1(j) and Section 2.1 (d) of the Disclosure Schedule,
all in form and substance reasonably satisfactory to Parent.
(d) Certificates. Parent shall have received a certificate of the chief
------------
executive officer of the Company and a certificate of each Seller, each in
substantially the form of Exhibit A.
(e) Opinion of Counsel. Parent shall have received the opinion dated the
------------------
Closing Date of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ PLLC, counsel to Sellers and the Company, in
substantially the form of Exhibit B.
(f) Employment Agreement. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ shall have executed and
--------------------
delivered to Parent an Employment Agreement, in the form of Exhibit C.
(g) Consulting Agreement. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ shall have executed and
--------------------
delivered to Parent a Consulting Agreement, in the form of Exhibit D.
(h) Investment Letter. Each Seller shall have duly executed and
-----------------
delivered to Parent the Investment Letter, in substantially the form of
Exhibit E.
(i) Corporate Directors and Officers. The composition of the directors
--------------------------------
and officers of the Company shall be as requested by Parent, effective as of the
Closing Date.
(j) Share Certificates and Corporation Records. Parent shall have
------------------------------------------
received certificates representing all of the Shares, together with stock powers
duly endorsed for transfer to Subsidiary, and Parent shall have received the
complete stock ledgers, minute books and similar corporate records of the
Company.
(k) Other Documents. Parent and Subsidiary shall have received such
---------------
other documents, certificates or instruments as they may reasonably request.
SECTION 4.2. Conditions to Obligations of Sellers. The obligations of
------------------------------------
Sellers to perform this Agreement are subject to the satisfaction of the
following conditions unless waived by Sellers:
(a) Authorization. All actions necessary to authorize the execution,
-------------
delivery and performance of this Agreement and the other agreements and
documents to which Parent or Subsidiary is a party as contemplated by this
Agreement and the consummation of the transactions contemplated hereby and
thereby shall have been duly and validly taken by Parent and Subsidiary, as the
case may be, and Parent and Subsidiary shall have full power and authority to
enter into and deliver such agreements and to consummate transactions
contemplated hereby and thereby, as applicable.
(b) Representations and Warranties. The representations and warranties
------------------------------
of Parent and Subsidiary contained herein shall be true and correct in all
material respects as of the date hereof and as of the Closing Date as if made on
and as of the Closing Date, and Parent and
-25-
Subsidiary shall have performed and complied with all covenants and agreements
required to be performed or complied with on or prior to the Closing Date.
(c) Registration Rights Agreement. Parent shall have duly executed and
-----------------------------
delivered to Sellers the Registration Rights Agreement, in substantially the
form of Exhibit F.
(d) Employment Agreement. Parent shall have executed and delivered to
--------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ an Employment Agreement, in the form of Exhibit C.
(e) Consulting Agreement. Subsidiary shall have executed and delivered
--------------------
to Parent a Consulting Agreement, in the form of Exhibit D.
(f) Certificate. Sellers shall have received a certificate of the
-----------
President or a Vice President of Parent and Subsidiary confirming the matters
set forth in Section 4.2(b) in form and substance reasonably satisfactory to
Sellers.
(g) Opinion of Counsel. Sellers shall have received the opinion dated
------------------
the Closing Date of ▇▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇▇, counsel to Parent, in substantially
the form of Exhibit G.
(h) Purchase Price. Noncompete Payment and Transferred Common Stock.
--------------
Sellers shall have received, pursuant to Section 1.2, the cash portion of the
Purchase Price payable on the Closing Date.
(i) Other Documents. Sellers shall have received such other documents,
---------------
certificates or instruments as it may reasonably request.
ARTICLE V
Indemnity
---------
SECTION 5.1. Indemnification. (a) Sellers jointly and severally
---------------
indemnify and hold harmless Parent, Subsidiary and their respective affiliates,
directors, officers, employees and other agents and representatives
(collectively, the "Parent Indemnified Parties") from and against any and all
liabilities, judgments, claims, settlements, losses, damages, fees, liens,
taxes, penalties, obligations and expenses (collectively, "Losses") incurred or
suffered by any such person arising from, by reason of or in connection with:
(i) any misrepresentation or breach of any representation, warranty
or agreement of any Seller contained in this Agreement or in any
certificate or other document delivered by any Seller on behalf of the
Company by any Seller hereunder;
(ii) the conduct of the business or other operations of the
Company before or on the Closing Date or any condition existing relating to
product or environmental liability prior to the Closing Date;
-26-
(iii) the non-fulfillment by any Seller of any agreement made by any
Seller in this Agreement;
(iv) the failure of any Seller to comply with any federal, state or
local tax laws applicable to the transactions contemplated by this
Agreement; and
(v) any and all actions, suits, proceedings, demands, judgments,
costs and legal and other expenses incident to any of the matters referred
to in clauses (i) through (iv) of this Section 5.1(a).
(b) Parent and Subsidiary jointly and severally indemnify and hold
harmless Sellers, and their respective agents and representatives (collectively,
the "Seller Indemnified Parties"), from and against any and all Losses incurred
or suffered by any such person arising from, by reason of or in connection with:
(i) any misrepresentation or breach of any representation, warranty
or agreement of Parent or Subsidiary contained in this Agreement or in any
certificate or other document delivered by Parent or Subsidiary hereunder;
(ii) to the extent that any such Loss is incurred or suffered by
such Seller solely in such Seller's capacity as a former stockholder of the
Company, the conduct of the business or other operations of the Company
after the Closing Date or any condition arising after the Closing Date
relating to product or environmental liability;
(iii) the non-fulfillment by Parent or Subsidiary of any agreement
made by it in this Agreement; and
(iv) any and all actions, suits, proceedings, demands, judgments,
costs and legal and other expenses incident to any of the matters referred
to in clauses (i) and (iii) of this Section 5.1(b).
(c) Indemnification Procedure. If any claim or litigation that might
-------------------------
give rise to any obligation of a party under the indemnity and reimbursement
provisions of this Agreement (each an "Indemnifying Party") shall come to the
attention of any Parent Indemnified Party or any Seller Indemnified Party
seeking indemnification hereunder (the "Indemnified Party"), the Indemnified
Party shall notify in writing promptly the Indemnifying Party of the existence
and amount thereof; provided, that a Parent Indemnified Party shall be required
to notify only ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ (the "Representative"). Failure to give any such
notice shall not prejudice the rights of the Indemnified Party, except to the
extent that the Indemnifying Party shall have been materially prejudiced by such
failure. The Indemnifying Party (or, if the Sellers are the Indemnifying
Parties, the
-27-
Representative) shall be entitled to participate in and, if (i) in
the judgment of the Indemnified Party (or, in the case of a Seller Indemnified
Party, of the Representative) such claim can properly be resolved by money
damages alone and the Indemnifying Party has the financial resources to pay such
damages and (ii) the Indemnifying Party (or, if the Sellers are the Indemnifying
Parties, the Representative) admits that this indemnity fully covers the claim
or litigation, the Indemnifying Party (or, if the Sellers are the Indemnifying
Parties, the Representative) shall be entitled to direct the defense of any
claim at its or his expense, but such defense shall be conducted by legal
counsel reasonably acceptable to the Indemnified Party (or, in the case of a
Seller Indemnified Party, to the Representative). It is understood that the
Indemnifying Party shall not, in connection with any action or related actions
in the same jurisdiction, be liable for the fees and disbursements of more than
one separate firm qualified in such jurisdiction to act as counsel for the
Indemnified Party; it being further understood that the Sellers collectively
shall be considered one Indemnified Party for purposes of this sentence. No
Indemnifying Party, in the defense of any claim or litigation, shall, except
with the consent of each Indemnified Party, consent to entry of any judgment or
enter into any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such Indemnified Party of a
release from all liability in respect to such claim or litigation.
(d) Parent and Subsidary may, and may direct the Company to, set off
against any amounts due to any Seller (including amounts due such Seller under
any employment or consulting agreement with such Seller), the amount of any
indemnity to which Parent or Subsidiary becomes entitled under this Agreement;
provided that Parent or Subsidiary may exercise this right of setoff only
following an adjudication as to the liability of Sellers. The obligations of a
Seller under this Section 5.1 for any claim to indemnity shall be reduced by the
amount (if any) that Parent or Subsidiary so sets off for such claim.
(e) No indemnity shall be payable under subparagraph (a)(iv) of this
Section 5.1 with respect to Losses that are indemnifiable under Section 3.10.
SECTION 5.2. Limitations. (a) The indemnification and reimbursement
-----------
obligations under Section 5.1 shall expire on the first anniversary of the
Closing Date (the "Expiration Date"), except as to any claims for, or any claims
that may result in, any liability, judgment, claim, settlement, loss, damage,
fee, lien, tax, penalty, obligation or expense for which indemnity may be sought
hereunder of which the Indemnifying Party (or the Representative) has received
written notice from the Indemnified Party on or before the Expiration Date.
(b) Sellers' obligations under Section 5.1 shall not exceed, in the
aggregate, $1,600,000. Parent's and Subsidiary's obligations under Section 5.1
shall not exceed, in the aggregate, $1,600,000.
(c) Sellers shall only be liable to the Parent Indemnified Parties for
Losses with respect to the matters described in Section 5.1 if any such Losses
exceed, in the aggregate, $250,000 in which case Sellers shall be liable, to the
extent provided in this Agreement, for any and all such Losses. Parent shall
only be liable to the Seller Indemnified Parties for Losses with respect to the
matters described in Section 5.1 if any such Losses exceed, in the aggregate,
$250,000 in which case Parent shall be liable, to the extent provided in this
Agreement, for any and all such Losses.
(d) The amount of any indemnification or reimbursement payment required
pursuant to this Agreement shall be determined taking into account any
hypothetical tax liability resulting from the receipt of the indemnity payment
and any hypothetical tax benefit resulting from the payment or
-28-
incurrence of taxes giving rise to the indemnity payment, as determined by
Parent, acting reasonably and in good faith.
(e) The amount of any indemnification or reimbursement payment required
pursuant to this Agreement shall be reduced by the amount of any insurance
recoveries actually received by the Indemnified Party. In the event that any
claim for indemnification asserted hereunder is, or may be, the subject of the
Company's or any party's hereto insurance or other right to indemnification or
contribution from any third party (a "Third Party Contributor"), the Indemnified
Party agrees to promptly notify the applicable insurance carrier of such claim
and tender defense thereof to such carrier, and shall also promptly notify any
potential Third Party Contributor. Each Indemnified Party shall pursue, at the
cost and expense of the Indemnifying Party, such claims diligently and to
reasonably cooperate, at the cost and expense of the Indemnifying Party, with
each such insurance carrier and Third Party Contributor, and to make no claim
for indemnification hereunder for a period of 180 days after making a claim for
such insurance or contribution. If insurance coverage or contribution is denied,
or if no resolution of an insurance or contribution claim shall have occurred
within such 180 days, the Indemnified Party may proceed for indemnification
hereunder, and such Indemnifying Party shall be subrogated to the rights of the
Indemnified Party against such insurance carrier.
SECTION 5.3. Exclusive Remedies. After the Closing, the remedies
------------------
contained in this Article V shall be the exclusive remedies available to any
party under this Agreement, except in connection with allegations of fraud and
as set forth in Section 3.10; provided that the foregoing shall not limit the
parties' respective rights to seek specific performance or other injunctive
relief pursuant to the express provisions of this Agreement.
ARTICLE VI
Miscellaneous
-------------
SECTION 6.1. Entire Agreement. This Agreement and the schedules and
----------------
exhibits hereto contain the entire agreement among the parties with respect to
the transactions contemplated by this Agreement and supersede all prior
agreements or understandings among the parties.
SECTION 6.2. Termination. (a) This Agreement shall terminate on the
-----------
earlier to occur of any of the following events:
(i) the mutual written agreement of Parent and the Sellers;
(ii) by written notice of Parent or the Sellers to the other party
hereto, if the Closing shall not have occurred prior to 12:00 midnight,
Eastern time, on February 28, 1997;
(iii) by written notice of Parent to the Sellers, if the Sellers
shall have materially breached any of its representations, warranties or
agreements contained herein; or
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(iv) by written notice of the Sellers to Parent, if either Parent or
Subsidiary shall have materially breached any of its representations,
warranties or agreements contained herein.
(b) Nothing in this Section shall relieve any party of any liability for
a breach of this Agreement prior to the termination hereof. Except as aforesaid,
upon the termination of this Agreement, all rights and obligations of the
parties under this Agreement shall terminate, except their obligations under
Sections 3.1, 3.6(a), 3.9 and Article V.
SECTION 6.3. Descriptive Headings; Certain Interpretations. (a)
---------------------------------------------
Descriptive headings are for convenience only and shall not control or affect
the meaning or construction of any provision of this Agreement.
(b) Whenever any party makes any representation, warranty or other
statement to such party's knowledge, such party shall be deemed to have made due
inquiry into the subject matter of such representation, warranty or other
statement.
(c) Except as otherwise expressly provided in this Agreement, the
following rules of interpretation apply to this Agreement: (i) the singular
includes the plural and the plural includes the singular; (ii) "or" and "any"
are not exclusive and "include" and "including" are not limiting; (iii) a
reference to any agreement or other contract includes permitted supplements and
amendments; (iv) a reference to a law includes any amendment or modification to
such law and any rules or regulations issued thereunder; (v) a reference to a
person includes its permitted successors and assigns; (vi) a reference to
generally accepted accounting principles refers to United States generally
accepted accounting principles; (vii) a reference in this Agreement to an
Article, Section, Exhibit or Schedule is to the Article, Section, Exhibit or
Schedule of this Agreement; and (viii) "to the knowledge of the Company", or
words of similar effect, means the actual knowledge, after due investigation, of
any of ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, or ▇▇▇▇▇ ▇▇▇▇▇.
SECTION 6.4. Notices. All notices, requests and other communications to
-------
any party hereunder shall be in writing and sufficient if delivered personally
or sent by telecopy (with confirmation of receipt) or by registered or certified
mail, postage prepaid, return receipt requested, addressed as follows:
If to Parent or Subsidiary, to:
Physician Support Systems, Inc.
▇▇▇▇▇ ▇▇▇ ▇▇▇ ▇▇▇-▇▇▇▇▇▇▇ ▇▇▇▇
▇▇. ▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopy: ▇▇▇-▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ III
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▇▇▇▇▇ ▇. ▇▇▇▇▇▇
with a copy to:
▇▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telecopy: ▇▇▇-▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇, Esq.
If to the Sellers to:
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ #▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
with a copy to:
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ PLLC
▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Telecopy: ▇▇▇-▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇, Esq.
or to such other address or telecopy number as the party to whom notice is to be
given may have furnished to the other party in writing in accordance herewith.
Each such notice, request or communication shall be effective when received or,
if given by mail, when delivered at the address specified in this Section or on
the fifth business day following the date on which such communication is posted,
whichever occurs first.
SECTION 6.5. Counterparts. This Agreement may be executed in any number
------------
of counterparts, and each such counterpart hereof shall be deemed to be an
original instrument, but all such counterparts together shall constitute but one
agreement.
SECTION 6.6. Survival. All representations and warranties, agreements
--------
and covenants contained herein or in any document delivered pursuant hereto or
in connection herewith (unless otherwise expressly provided herein or therein)
shall survive the Closing and shall remain in full force and effect until the
Expiration Date.
SECTION 6.7. Benefits of Agreement. All of the terms and provisions of
---------------------
this Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns. This Agreement is for the
sole benefit of the parties hereto and not for the benefit of any third party.
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SECTION 6.8. Amendments and Waivers. No modification, amendment or
----------------------
waiver of any provision of, or consent required by, this Agreement, nor any
consent to any departure herefrom, shall be effective unless it is in writing
and signed by the parties hereto. Such modification, amendment, waiver or
consent shall be effective only in the specific instance and for the purpose for
which given.
SECTION 6.9. Assignment. This Agreement and the rights and obligations
----------
hereunder shall not be assignable or transferrable by any party hereto without
the prior written consent of the other parties hereto. Any instrument purporting
to make such assignment shall be void.
SECTION 6.10. Enforceability. It is the desire and intent of the parties
--------------
hereto that the provisions of this Agreement shall be enforced to the fullest
extent permissible under the laws and public policies applied in each
jurisdiction in which enforcement is sought. Accordingly, if any particular
provision of this Agreement shall be adjudicated to be invalid or unenforceable,
such provision shall be deemed amended to delete therefrom the portion thus
adjudicated to be invalid or unenforceable, such deletion to apply only with
respect to the operation of such provision in the particular jurisdiction in
which such adjudication is made.
SECTION 6.11. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
-------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MICHIGAN, WITHOUT REGARD
TO CONFLICT OF LAWS PRINCIPLES.
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In witness whereof, each of the parties has caused this Agreement to be
duly executed and delivered as of the day and year first above written.
Physician Support Systems, Inc.
By: /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ III
-----------------------------------
Name: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ III
Title: Executive Vice President
PSI Acquisition Corp.
By: /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ III
-----------------------------------
Name: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ III
Title: Vice President
Sellers:
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
--------------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
--------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
--------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇, as Independent Trustee
of the ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ Family Trust Dated
November 4, 1996
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
--------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇, as Independent Trustee
of the ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ Family Trust Dated
November 4, 1996
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