Exhibit 2.1
STOCK PURCHASE AGREEMENT
by and among
CHAMPION FINANCIAL CORPORATION,
HEALTHSTAR, INC.,
and
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Dated December 8, 1997
TABLE OF CONTENTS
STOCK PURCHASE AGREEMENT
SECTION PAGE
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ARTICLE I - DEFINITIONS 2
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1.1 Defined Terms....................................................2
1.2 Interpretation...................................................7
ARTICLE II - PURCHASE AND SALE OF SHARES 7
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2.1 Shares to be Purchased...........................................7
2.2 Purchase Price...................................................7
2.3 Closing .........................................................8
2.4 Deliveries of Sellers at Closing.................................8
2.5 Deliveries of Buyer at Closing...................................8
2.6 Adjustment Amount................................................9
2.7 Adjustment Procedure.............................................9
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLER.........................10
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3.1 Corporate Existence and Power...................................10
3.2 No Conflict.....................................................10
3.3 Capitalization and Ownership; Subsidiaries; Investments.........11
3.4 Financial Statements............................................12
3.5 Events Subsequent to March 31, 1997.............................12
3.6 [Intentionally Omitted.]........................................13
3.7 Undisclosed Liabilities.........................................13
3.8 Taxes ........................................................14
3.9 Accounts Receivable.............................................16
3.10 No Breach of Law or Governing Document.........................17
3.11 Litigation.....................................................17
3.12 Real Property - Owned..........................................17
3.13 Personal Property - Owned......................................17
3.14 Real and Personal Property - Leased............................18
3.15 Necessary Property and Transfer of Shares......................18
3.16 Use and Condition of Property; Location........................18
3.17 Licenses and Permits...........................................19
3.18 Environmental Matters..........................................19
3.19 Contracts......................................................19
3.20 Licensed Properties............................................19
3.21 Intellectual Property..........................................20
3.22 Insurance......................................................20
3.23 Officers, Directors, Employees, and Consultants................20
3.24 Bank Accounts of the Company...................................21
3.25 Transactions with Related Persons..............................21
3.26 Labor Matters..................................................21
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3.27 Employee Benefit Matters.......................................22
3.28 Discrimination and Occupational Safety and Health..............25
3.29 Books and Records..............................................25
3.30 Disclosure.....................................................25
3.31 Affiliates.....................................................26
3.32 Guarantees.....................................................26
3.33 Brokers, Finders...............................................26
3.34 Total Liabilities..............................................26
3.35 Investor Suitability Representations of Seller.................26
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER; CERTAIN
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COVENANTS OF BUYER...................................................27
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4.1 Corporate Existence and Power...................................27
4.2 Organization and Qualification..................................27
4.3 CPFC Common Stock...............................................28
4.4 Authority; Non-Contravention; Approvals.........................28
4.5 Reports and Financial Statements................................29
4.6 Absence of Undisclosed Liabilities..............................29
4.7 Absence of Certain Changes or Events............................29
4.8 No Violation of Law.............................................29
4.9 Litigation......................................................30
4.10 Complete Disclosure............................................30
4.11 Investment Representation......................................30
4.12 Brokers, Finders...............................................30
4.13 Covenants Regarding Certain Leases.............................30
4.14 Covenant Regarding Accounts Receivable Collection..............30
ARTICLE V
COVENANTS CONCERNING SELLER..........................................31
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5.1 Operation of the PPO Business...................................31
5.2 Preservation of Business........................................32
5.3 Insurance and Maintenance of Property...........................32
5.4 Full Access.....................................................32
5.5 Books, Records and Financial Statements.........................32
5.6 Other Governmental Filings......................................32
5.7 Management of Business..........................................32
5.8 Restructuring...................................................32
ARTICLE VI
COVENANT NOT TO COMPETE..............................................33
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6.1 Territory.......................................................33
6.2 No Solicitation.................................................33
6.3 Confidential Information........................................34
6.4 Remedies........................................................34
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ARTICLE VII
ADDITIONAL COVENANTS OF THE PARTIES..................................35
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7.1 Confidentiality.................................................35
7.2 Further Assurances..............................................35
7.3 Seller's Registration Rights....................................35
ARTICLE VIII
CONDITIONS TO BUYER'S OBLIGATIONS....................................35
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8.1 Representations and Warranties of Seller........................35
8.2 Performance of this Agreement...................................35
8.3 Material Adverse Change.........................................35
8.4 Certificate of Seller...........................................36
8.5 Opinion of Counsel..............................................36
8.6 Resignations....................................................36
8.7 Restructuring Complete..........................................36
8.8 No Lawsuits.....................................................36
8.9 No Restrictions.................................................36
8.10 Consents.......................................................36
8.11 Releases.......................................................36
8.12 Stock Certificates.............................................36
8.13 Closing Balance Sheet..........................................36
8.14 Working Capital of the Company.................................37
8.15 Financing Availability.........................................37
8.16 Proforma Financial Information.................................37
8.17 Further Assurances.............................................37
ARTICLE IX
CONDITIONS TO SELLER'S OBLIGATIONS...................................37
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9.1 Representations and Warranties of Buyer.........................37
9.2 Performance of this Agreement...................................37
9.3 Certificate of Buyer............................................37
9.4 Material Adverse Change.........................................37
9.5 Opinion of Counsel..............................................37
9.6 No Lawsuits.....................................................38
9.7 No Restrictions.................................................38
9.8 Consents........................................................38
9.9 Stock Certificates..............................................38
9.10 CPFC Note and Security Agreement...............................38
9.11 Payment of Purchase Price......................................38
9.12 Further Assurances.............................................38
ARTICLE X
INDEMNIFICATION......................................................38
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10.1 Indemnification of Buyer.......................................38
10.2 Indemnification of Seller......................................39
10.3 Notice of Claim................................................40
10.4 Right to Contest Claims of Third Persons.......................40
10.5 Limitations on Indemnity.......................................41
10.6 Right of Set-Off...............................................41
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ARTICLE XI
MISCELLANEOUS PROVISIONS.............................................41
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11.1 Notice ........................................................41
11.2 Entire Agreement...............................................42
11.3 Assignment; Binding Agreement..................................42
11.4 Counterparts...................................................42
11.5 Headings; Interpretation.......................................42
11.6 Expenses.......................................................43
11.7 Termination of Agreement.......................................43
11.8 Manner and Effect of Termination...............................43
11.9 Remedies Cumulative............................................43
11.10 Governing Law.................................................44
11.11 Code Section 338(h)(10) Election..............................44
TABLE OF SCHEDULES* AND EXHIBITS**
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Schedule 1.1 Further Description of Restructuring
Schedule 2.5 Payment Instructions
Schedule 3.1 Articles of Incorporation, Bylaws and
Certificate of Existence and Good Standing
Schedule 3.2 Resolutions
Schedule 3.3 Authorized Capital Stock
Schedule 3.4 Financial Statements
Schedule 3.5 Changes in Business or Condition
Schedule 3.7 Undisclosed Liabilities
Schedule 3.8 Taxes
Schedule 3.9 Accounts Receivable
Schedule 3.10 Notice of Default, Breach or Violation
Schedule 3.11 Litigation
Schedule 3.12 Real Property Owned
Schedule 3.13 Liens on Personal Property Owned
Schedule 3.14 Real and Personal Property-Leased
Schedule 3.18 Environmental Matters
Schedule 3.19 Contracts
Schedule 3.20 Intellectual Property
Schedule 3.21 Insurance Policies
Schedule 3.22 Officers, Directors, Employees and
Consultants
Schedule 3.23 Bank Accounts
Schedule 3.24 Transactions with Affiliates
Schedule 3.25 Labor Matters
Schedule 3.26 Employee Benefit Matters
Schedule 3.27 Employment Discrimination Claims
Schedule 3.29 Products Warranties
Schedule 3.30 Product Liability
Schedule 3.32 Foreign Assets
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Schedule 3.33 Foreign Operations and Export Control
Schedule 3.36 Affiliates
Schedule 3.37 Guarantees
Schedule 4.1 Articles of Incorporation, Bylaws and
Certificate of Existence and Good Standing
Schedule 6.1 Business Interests
Exhibit A Form of CPFC Subordinated Promissory Note
Exhibit B Form of Security Agreement
Exhibit C Form of Legal Opinion of Seller's Counsel
Exhibit D Form of Legal Opinion of Buyer's Counsel
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* Pursuant to Item 601(b)(2) of Regulation S-K, these Schedules have
been omitted. The Registrant hereby agrees to furnish supplementally a copy of
any omitted schedule to the Commission upon request.
** Exhibit A is filed as Exhibit 10.1 to this Form 8-KA. Exhibit B was
never entered into and is not filed. Exhibits C and D are not material and are
not filed.
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STOCK PURCHASE AGREEMENT
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THIS STOCK PURCHASE AGREEMENT (the "Agreement") is entered into as of
this 8th day of December, 1997, by and among CHAMPION FINANCIAL CORPORATION, a
Utah corporation (the "Buyer"), HEALTHSTAR, INC., an Illinois corporation
("Company"), and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, an individual resident in Illinois (the
"Seller"). Capitalized terms are defined in Article I.
WITNESSETH:
WHEREAS, Seller owns all of the issued and outstanding capital
stock of the Company (the "Company Shares");
WHEREAS, the Company conducts a preferred provider managed
care organization under the names HealthStar and HealthStar Managed Care (the
"PPO Business"), as well as separate businesses relating to accelerated medical
receivables management which is commonly referred to within the Company as the
Accelerated Receivables Management division ("ARM") and to other health care
related products and services;
WHEREAS, prior to the Closing, the Company shall distribute to
an entity owned by the Seller all of its assets and all of its liabilities which
do not relate to the conduct of PPO Business, including assets and liabilities
relating to ARM and to certain other operations more fully described
hereinafter, such that, prior to the Closing, the Restructuring shall be
complete and the assets and liabilities of the Company shall consist solely of
thoe relating to the PPO Business;
WHEREAS, the Seller desires to sell all of the Company Shares
to the Buyer, and the Buyer desires to purchase the Company Shares from the
Seller, on the terms and conditions and for the consideration described in this
Agreement and, following such acquisition, the Buyer intends to file an election
under Section 338(h)(10) of Code;
NOW, THEREFORE, in consideration of the foregoing recitals and
the mutual covenants, representations, warranties, conditions, and agreements
hereinafter expressed, the Parties agree as follows:
ARTICLE I
DEFINITIONS
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1.1 Defined Terms. As used in this Agreement and in the Schedules and
Exhibits attached hereto, the defined terms set forth below have the respective
meanings set forth below (each such meaning to be equally applicable to both the
singular and plural forms of the respective terms so defined).
"Accounts Receivable" has the meaning set forth in Section 3.9.
"Acquired Business" means the Company's business of operating a
preferred provider organization whereby medical services providers and
facilities are contracted with for the benefit of insurance companies, third
party administrators, health maintenance organizations, and/or employers
providing self-funding of group health coverage.
"Action" has the meaning set forth in Section 3.11.
"Adjustment Amount" has the meaning set forth in Section 2.6.
"Affiliate" has the meaning set forth in Section 3.31.
"Buyer" means Champion Financial Corporation, a Utah corporation.
"Buyer Indemnified Persons" has the meaning set forth in Section 10.1.
"Closing" means the consummation of the transactions contemplated by
this Agreement.
"Closing Balance Sheet" means the balance sheet of the Company at the
Effective Date, giving effect to the Restructuring, prepared on a basis
consistent with the Financial Statements, delivered to Buyer two days prior to
the Closing Date.
"Closing Date" means December 15, 1997 or, if the conditions to Closing
are not by then satisfied, on such Closing Date as Buyer and Seller shall
reasonably designate upon satisfaction of such conditions.
"COBRA" means the Consolidated Omnibus Budget Reconciliation Act of
1985, as amended.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" means the authorized common stock, no par value of the
Company.
"Company" means HealthStar, Inc., an Illinois corporation
"Company Shares" means all of the issued and outstanding capital stock
of the Company.
"Confidential Information" has the meaning set forth in Section 6.3.
"Contract" means any contract, agreement, understanding, lease,
indenture, evidence of indebtedness, binding commitment or instrument, purchase
order, or offer, written or oral, to which the Company is a party or by which it
is bound and which directly or indirectly relates to the PPO Business..
"Covenant Not to Compete" means the obligations of the Seller under
Article VI.
"CPFC Note" has the meaning set forth in Section 2.2
"CPFC Common Stock" means the common stock, par value $.001 per share,
of CPFC.
"Developments" has the meaning set forth in Section 6.3.
"EPA" means the United States Environmental Protection Agency.
"Effective Date" means the effective date and time of the Closing,
which shall be the close of business on the business day preceding the Closing
Date.
"Environmental Law" means any current, past, or future Law relating to
the protection of health or the environment, including without limitation: the
Clean Air Act, the Federal Water Pollution Control Act, the Resource
Conservation and Recovery Act, the Comprehensive Environmental Response,
Compensation and Liability Act, the Toxic Substance Control Act, any comparable
state or foreign law, and the common law, including the law of nuisance and
strict liability.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow Agent" shall mean the Person acting as the escrow agent under
the Escrow Agreement at any relevant date.
"Escrow Agreement" shall mean the Escrow Agreement by and between
Buyer, Seller and the Escrow Agent.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Financial Statements" means (a) the audited balance sheets of the
Company as of March 31, 1997; (b) the related statements of operations,
stockholder's equity and cash flows for the years ended on March 31, 1997 and
March 31, 1996; (c) an unaudited balance sheet of the Company as of September
30, 1997 and the related statement of operations of the Company for the
six-month period then ended; (d) an unaudited balance sheet of the Company as of
October 31, 1997; and (e) together, as to all the foregoing, with any notes or
schedules thereto.
"Final Purchase Price" means the Initial Purchase Price following
adjustment pursuant to Section 2.2 if any.
"GAAP" means U.S. generally accepted accounting principles, applied on
a consistent basis.
"Government" means the United States of America, any state, any
possession, territory, local, county, district, city or other governmental unit
or subdivision, and any branch, entity, agency, or judicial body of any of the
foregoing.
"Hazardous Materials" means all hazardous substances, wastes, materials
or constituents, solid wastes, special wastes, toxic substances, pollutants,
contaminants, petroleum or petroleum derived substances or wastes, radioactive
materials, urea formaldehyde, polychlorinated biphenyls, radon gas and related
materials, and including, without limitation, any materials defined, listed,
identified under or described in any Environmental Law.
"IRCA" means the Immigration Reform and Control Act of 1986 and the
rules and regulations thereunder.
"IRS" means the United States Internal Revenue Service.
"Indemnified Party" has the meaning set forth in Section 10.3.
"Indemnifying Party" has the meaning set forth in Section 10.3.
"Indemnified Losses" has the meaning set forth in Section 10.1.
"Intellectual Property" means patents, trademarks, trade names,
corporate names, service marks, copyrights, and copyrighted works; registrations
thereof and applications therefor; trade secrets, software, firmware, programs,
inventions, proprietary processes, and items of proprietary know-how,
information or data; proprietary prospect lists, customer lists, projections,
analyses, and market studies; and licenses, sublicenses, assignments; agreements
in respect of any of the foregoing; and goodwill associated with any of the
foregoing.
"Law" means any statute, law, ordinance, decree, order, injunction,
rule, directive, or regulation of any Government or quasi-governmental
authority, and includes rules and regulations of any regulatory or
self-regulatory authority compliance with which is required by Law.
"Liabilities" means current and non-current liabilities, obligations
and commitments, determined in accordance with GAAP.
"Lien" means any lien, security interest, mortgage, pledge, charge,
adverse claim, restriction or other encumbrance.
"Losses" has the meaning set forth in Section 10.1.
"Material Contract" has the meaning set forth in Section 3.19(a).
"Non-Competition Period" has the meaning set forth in Section 6.1.
"Order" means an order, writ, injunction, or decree of any court or
other Government.
"Ordinary Course" means, with respect to a business, only the ordinary
course of day-to-day commercial operations customarily engaged in by such
business, and specifically does not include (a) activity (i) involving the
purchase or sale of such business or of any product line or business unit, (ii)
involving modification or adoption of any Plan or (iii) which requires approval
by the board of directors or shareholders of a corporation engaged in such
business, or (b) the incurrence of any liability for any tort or any breach or
violation of or default under any agreement or Law.
"Organizational Documents" has the meaning set forth in Section 3.1(a).
"PBGC" means the Pension Benefit Guaranty Corporation.
"Party" means either the Company, Buyer or Seller and "Parties" means
all of them.
"Person" means any individual, corporation, partnership, limited
liability company, joint venture, estate, trust, association, organization, or
other entity or Government authority, agency or other body.
"Plan" means any agreement, arrangement, plan, or policy, whether or
not considered legally binding and whether or not written, that involves (a) any
pension, retirement, profit sharing, deferred compensation, bonus, stock option,
stock purchase, phantom stock, health, welfare, or incentive plan; or (b)
welfare or "fringe" benefits, including without limitation vacation, severance,
disability, medical, hospitalization, dental, life and other insurance, tuition,
company car, club dues, sick leave, maternity, paternity or family leave, or
other benefits.
"PPO Business" is defined in the second "WHEREAS" clause herein.
"Purchase Price" has the meaning set forth in Section 2.2.
"Restructuring" means the disposition by transfer, from the Company to
one or more entities specified by the Seller, of all of the assets and
liabilities of the Company then-existing other than assets of the Company used
in the PPO Business and the liabilities directly related to such assets; the
assets which will be transferred by the Company in connection with the
Restructuring are described in more detail on Schedule 1.1, and shall include
those assets used in connection with ARM, the computer hardware and software
relating to ARM, Payment Express, Hyper Express, AffordaCare, El Dorado Claims
Adjudication System, and Cert Scan, together with all liabilities associated,
directly or indirectly, therewith.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Agreement" means the Security Agreement in the form of
Exhibit B hereto, delivered by Buyer to Seller at the Closing, as the same may
be amended or modified from time to time.
"Seller Indemnified Persons" has the meaning set forth in Section 10.2.
"Sponsor" means any employer who is participating (or who has
participated) in any Plan.
"Subsidiary" means any Person, a majority of the stock (or other
interests) of any class or classes of which is owned, directly or indirectly, by
another Person.
"Tax" or "Taxes" means all taxes, charges, fees, levies, or other like
assessments, including without limitation, all federal, possession, state, city,
county and foreign (or governmental unit, agency, or political subdivision of
any of the foregoing) income, profits,
employment (including Social Security, unemployment insurance and employee
income tax withholding), franchise, gross receipts, sales, use, transfer, stamp,
occupation, property, capital, severance, premium, windfall profits, customs,
duties, ad valorem and excise taxes; Pension Benefit Guaranty Corporation
premiums and any other governmental charges of the same or similar nature; and
all penalties, additions to tax and interest relating to any such taxes,
premiums or charges. Any one of the foregoing Taxes shall be referred to
sometimes as a "Tax."
"Tax Returns" means all reports, estimates, information statements and
returns relating to or required by law to be filed by the Company in connection
with any Taxes, and all information returns (e.g., Form W-2, Form 1099) and
reports relating to Taxes and taxes payable by, pursuant to or in connection
with employee benefit plans of the Company. Any one of the foregoing Tax Returns
shall be referred to sometimes as a "Tax Return."
"Territory" means the continental United States.
"Third Person" has the meaning set forth in Section 10.4.
"Third-Person Claim" has the meaning set forth in Section 10.4.
"VEBA" means voluntary employees' beneficiary association.
"Welfare Plan" means an employee welfare benefit plan (within the
meaning of ERISA Section 3(1)).
"Working Capital" means the amount equal to (i) total current assets
minus (ii) total current liabilities determined on a basis consistent with the
Financial Statements and in accordance with GAAP.
1.2 Interpretation. As used in this Agreement, the terms "hereof",
"herein", "hereunder" and comparable terms refer to this agreement in its
entirety and not to any particular article, section or other subdivision hereof.
Unless otherwise indicated, references in this agreement to any "Section",
"Article", "Schedule" or "Exhibit" means a section or article of this Agreement
or a Schedule or Exhibit attached to this Agreement, as the case may be.
ARTICLE II
PURCHASE AND SALE OF SHARES
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2.1 Shares to be Purchased. Subject to the terms and conditions hereof,
on the Closing Date the Seller shall sell and deliver to Buyer and Buyer shall
purchase and accept from the Seller, free and clear of all Liens, all of
Seller's right, title and interest to and in all the Company Shares for the
Purchase Price.
2.2 Purchase Price. The purchase price (the "Purchase Price") for the
Company Shares and other rights of Buyer hereunder shall be comprised of the
following:
(a) cash in the amount of $6,000,000; plus
(b) CPFC's subordinated note in the original principal amount
of $2,100,000, which shall provide for the payment of the first $750,000 of
principal on the one year anniversary date of Closing and otherwise
substantially in the form of Exhibit A hereto (the "CPFC Note"); plus
(c) 382,500 shares of CPFC Common Stock (the "CPFC Shares").
$250,000 of the cash portion of the Purchase Price shall be deposited
in the Escrow Account and shall be subject to disbursement by the Escrow Agent
to Buyer or to Seller in accordance with the terms of the Escrow Agreement.
The Buyer and the Seller acknowledge and agree that the value per share
of the CPFC Common Stock is $9.00 for purposes of determining the Purchase
Price, and that such value was determined by arm's-length negotiations between
the Buyer and the Seller prior to the date hereof.
The Purchase Price shall be adjusted, upwards or downwards, by the
Adjustment Amount. Any such adjustment shall be made as follows: first, by
reduction to the original principal amount of the CPFC Note; second, the amount
of cash payable pursuant to Section 2.2(a); and, third, the number of shares of
CPFC Common Stock constituting a portion of the Purchase Price.
2.3 Closing. The Closing shall take place at 9:00 A.M. on the Closing
Date at the offices of the Seller, ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇ ▇▇▇▇▇ or, if all the conditions to Closing are not by then satisfied or
waived, on such Closing Date as Buyer and Sellers shall reasonably designate
upon satisfaction of all such conditions. Each Party shall reasonably cooperate,
as to matters under such Party's control, in the satisfaction of conditions to
the obligations of the Parties at Closing; provided, that the foregoing shall
not require either Party to waive any condition herein to its obligations at
Closing or to incur any substantial cost not otherwise required hereunder.
2.4 Deliveries of Sellers at Closing. At Closing, subject to the
conditions to the Seller's obligations in Article IX, Seller shall deliver or
cause to be delivered to Buyer:
(a) certificates representing all the Company Shares, free and
clear of all security interests, claims, and restrictions (other than legends or
other restrictions evidencing the restricted nature of such Company Shares
pursuant to applicable state and federal securities laws), duly endorsed to
Buyer or in blank; and
(b) the documents identified in Sections 8.4, 8.5, 8.7, 8.10
and 8.11.
2.5 Deliveries of Buyer at Closing. At Closing, subject to the
conditions to the Buyer's obligations in Article VIII, Buyer shall deliver:
(a) wire transfer of immediately available funds to accounts
designated by Seller, the cash portion of the Purchase Price;
(b) the CPFC Note and the Security Agreement, each duly
executed;
(c) certificates representing the CPFC Shares, free and clear
of all security interests, claims and restrictions (other than legends or other
restrictions evidencing the restricted nature of the CPFC Shares pursuant to
applicable state and federal securities laws; and
(d) the documents identified in Sections 9.3, 9.5 and 9.10,
and a copy of the document identified in Section 9.9.
2.6 Adjustment Amount. The Adjustment Amount (which may be a positive
or negative number) shall be equal to (a) the Working Capital of the Company as
of the Closing Date, minus (b) $859,000. The Adjustment Amount shall be
determined, initially, on the basis of the Closing Balance Sheet, and shall be
determined finally in accordance with the provisions of Section 2.7.
2.7 Adjustment Procedure.
(a) The Company will prepare and will cause KPMG Peat Marwick
LLP to audit financial statements ("Closing Financial Statements") of the
Company as of the Closing Date and for the period from April 1, 1997 through the
Closing Date including a computation of Working Capital as of the Closing Date.
The Company will deliver the Closing Financial Statements to Buyer and Seller
within ninety days after the Closing Date. If within fifteen days following
delivery of the Closing Financial Statements, Buyer or Seller has not given the
other notice of its objection to the Closing Financial Statements (such notice
must contain a statement of the basis of any objection), then the Working
Capital computed on the basis of the information set forth in the Closing
Financial Statements will be used in computing the final Adjustment Amount. If
Buyer or Seller gives such notice of objection, then the issues in dispute will
be submitted to certified public accountants of national standing selected by
Buyer (the "Accountants"), for resolution. If issues in dispute are submitted to
the Accountants for resolution, (i) each party will furnish to the Accountants
such workpapers and other documents and information relating to the disputed
issues as the Accountants may request and are available to that party (or its
independent public accountants), and will be afforded the opportunity to present
to the Accountants any material relating to the determination and to discuss the
determination with the Accountants; (ii) the determination by the Accountants,
as set forth in a notice delivered to both parties by the Accountants, as set
forth in a notice delivered to both parties by the Accountants, will be binding
and conclusive on the parties; and (iii) Buyer and Seller will each bear 50% of
the fees of the Accountants for such determination.
(b) On the tenth business day following the final
determination of the final Adjustment Amount, if the Purchase Price is greater
than the aggregate of the payments made pursuant to Section 2.2(a)-(c), as
adjusted on the basis of the Closing Balance Sheet, Buyer will pay the
difference to Seller, and if the Purchase Price is less than such aggregate
amount, Seller will pay the difference to Buyer. All payments will be made
together with interest at 8% compounded daily beginning on the Closing Date and
ending on the date of payment. Payments to Seller shall be made by increasing
the principal balance of the CPFC Note and allocating such increase among the
amounts due on the scheduled payment dates thereunder. Payments to Buyer
shall be made by a reduction in the principal amount of the CPFC Note, then from
funds remaining on deposit under the Escrow Agreement .
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLER
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Seller hereby makes the following representations and warranties, each
of which is true and correct on the date hereof and, except for changes
expressly permitted by this Agreement, shall be true and correct on the Closing
Date and each of which shall survive the Closing Date and the transactions
contemplated hereby to the extent set forth herein.
3.1 Corporate Existence and Power.
(a) The Company is a corporation duly organized and validly
existing under the laws of the State of Illinois. A copy of the articles or
certificate of incorporation and the bylaws of the Company as currently in
effect (the "Organizational Documents"), certified by its secretary, is attached
as Schedule 3.1. The Company is duly qualified to do business as a foreign
corporation and in good standing under the laws of each state in which either
the ownership or use of the properties owned or used by it, or the nature of the
activities conducted by it, requires such qualification, except where the
failure to be so qualified and in good standing will not, taken together with
all other such failures, have a material adverse effect on its business or
financial condition.
(b) The Company has the corporate power and authority to own
and use its assets and to transact the business in which it is engaged, and
holds all franchises, licenses and permits required therefor. The Company is
duly licensed or qualified to do business as a foreign corporation and is in
good standing in each jurisdiction where such license or qualification is
required. Schedule 3.1 sets forth a list of (a) each jurisdiction in which the
Company is qualified or licensed to do business and (ii) each state or province
in which the Company owns and/or leases real property.
(c) The Seller has absolute and unrestricted right, power and
authority and capacity to enter into this Agreement, to perform its obligations
hereunder, and to consummate the transactions contemplated hereby. This
Agreement constitutes a legal, valid and binding obligation of the Seller,
enforceable against it in accordance with its terms.
3.2 No Conflict. Except as set forth in Schedule 3.2 and except such as
would not in the aggregate have a material adverse effect on the business of the
Company (after giving effect to the Restructuring), neither the execution and
delivery of this Agreement nor the consummation or performance of any of the
transactions contemplated hereby (including, without limitation, the
Restructuring) will, directly or indirectly (with or without notice or lapse of
time):
(a) contravene, conflict with, or result in a violation of (i)
any provision of the Organizational Documents, or (ii) any resolution adopted by
the board of directors or the shareholders of the Company;
(b) contravene, conflict with, or result in a violation of, or
give any government authority or agency, the right to challenge any of the
transactions or to exercise any remedy or obtain any relief under, any Law or
any Order to which the Company or the Seller, or any of the assets owned or used
by the Company, may be subject;
(c) contravene, conflict with, or result in a violation of any
of the terms or requirements of, or give any Government authority or agency the
right to revoke, withdraw, suspend, cancel, terminate, or modify, any approval,,
consent, permit, license or other authorization issued, given or otherwise made
available by any government authority or agency that is held by the Company or
that otherwise relates to the PPO Business of, or any of the assets owned or
used by, the Company;
(d) cause Buyer or the Company to become subject to, or to
become liable for the payment of, any Tax;
(e) cause any of the assets owned by the Company to be
reassessed or revalued by any taxing authority;
(f) contravene, conflict with, or result in a violation or
breach of any provision of, or give any Person the right to declare a default or
exercise any remedy under, or to accelerate the maturity or performance of, or
to cancel, terminate, or modify, any Contract; or
(g) result in the imposition or creation of any Encumbrance
upon or with respect to any of the assets owned or used by the Company, other
than any Encumbrance relating the obligations secured in connection with the
CPFC Note.
3.3 Capitalization and Ownership; Subsidiaries; Investments.
(a) The authorized capital stock of the Company is set forth
on Schedule 3.3. The Company Shares are the only issued and outstanding shares
of Common Stock. All the Company Shares were duly authorized and validly issued
and are fully paid and non-assessable without restriction on the right of
transfer thereof. Except for Buyer's rights pursuant to this Agreement, (a)
there are no authorized or outstanding (i) securities of the Company other than
the Company Shares, or (ii) warrants, preemptive rights, other rights, or
options with respect to any securities of the Company and (b) neither the
Company nor the Seller is subject to any obligation to issue, sell, deliver,
redeem, or otherwise transfer, acquire or retire the Company Shares or any other
securities of the Company.
(b) Seller is the sole holder and owner, of record and
beneficially, of all of the Company Shares, free and clear of all security
interests, claims, and restrictions. The Company Shares shall be transferred
free and clear of all Liens at Closing.
(c) The Company does not have any Subsidiaries. Except as set
forth on Schedule 3.3, the Company does not own any shares of stock or any other
security or interest in any Person.
3.4 Financial Statements.
(a) Attached as Schedule 3.4 are the Financial Statements.
(b) The Financial Statements were derived from the books and
records of the Company and (i) are true, complete and correct, (ii) present
fairly the financial condition and results of operations, changes in
stockholders' equity and cash flows of the Company at the dates and for the
periods indicated, (iii) have been prepared in accordance with GAAP applied on a
consistent basis, and (iv) do not include any untrue statement of a material
fact required to be stated or reflected therein or omit to state or reflect any
material fact necessary to make any statements therein not misleading.
3.5 Events Subsequent to March 31, 1997. Since March 31, 1997, except
as set forth on Schedule 3.5, there has been no:
(a) change in the business or condition (financial or
otherwise), operations, or prospects of the Company with respect to the PPO
Business other than changes in the Ordinary Course;
(b) damage, destruction or loss, whether covered by insurance
or not, affecting any assets material to the business operations of the Company;
(c) loss or threatened loss of a material customer account of
the Company;
(d) declaration, setting aside, or payment of any dividend or
any distribution (in cash or in kind) with respect to the common stock or other
securities of the Company or any direct or indirect redemption, purchase or
other acquisition by the Company of any of its securities, except in connection
with the Restructuring;
(e) sale or direct or indirect redemption, purchase or other
acquisition of the common stock or other securities of the Company, except in
connection with the Restructuring;
(f) payment of fees or expenses of counsel, accountants and
other experts incurred by the Company (or incurred by the Seller and paid by the
Company) incident to the negotiation, preparation or execution of this Agreement
or the Closing;
(g) increase in or commitment to increase compensation,
benefits, or other remuneration to or for the benefit of any employee,
shareholder, director, officer, or agent of the Company, or any benefits granted
under any Plan with or for the benefit of any such employee, shareholder,
director, officer, or agent, except for increases in salary, wages or benefits
in the Ordinary Course;
(h) material transaction entered into or carried out by the
Company or the Seller in connection with the Business, or by the Company, other
than in the Ordinary Course of the business of the Company and except in
connection with the Restructuring;
(i) borrowing or incurrence of any indebtedness (including
letters of credit and foreign exchange contracts), contingent or otherwise, by
or on behalf of the Company, any endorsement, assumption, or guarantee of
payment or performance of any such indebtedness or any Liabilities of any other
person or entity by or on behalf of the Company;
(j) change made with respect to the Company in its Tax or
financial accounting or any Tax election, including the election to be treated
as an S corporation within the meaning of Section 1361 of the Code;
(k) grant of any Lien with respect to the Company Shares or
the assets of the Company used or useful in the PPO Business which will not have
been released prior to the Closing;
(l) transfer of any assets of the Company used in the PPO
Business, other than arm's-length sales, leases, or dispositions in the Ordinary
Course of its business and other than transfers directly related to the
Restructuring;
(m) material modification or termination of any Contract or
any material term thereof except in the Ordinary Course;
(n) lease or acquisition of any capital assets by the Company
with a value greater than $5,000 per item;
(o) loan or advance by the Company to any third party; or
(p) commitment or agreement by the Company to do any of the
foregoing items (d) through (o).
3.6 [Intentionally Omitted.]
3.7 Undisclosed Liabilities. The Company does not have any Liabilities
whatsoever, known or unknown, asserted or unasserted, liquidated or
unliquidated, accrued, absolute, contingent, or otherwise, and there is no basis
for any claim against the Company for any such Liability, except (a) as set
forth on the Financial Statements or Schedule 3.7, or (b) to the extent they
arise in the Ordinary Course of the business of the Company and are not required
to be set forth in a schedule hereto, performance and payment obligations (but
not liabilities for breach or violation) lawfully incurred under arm's-length
contracts for goods or services, none of which will, or could, individually or
in the aggregate have a material adverse effect upon the Business or the
Company.
3.8 Taxes.
(a) The Company has timely filed or caused to be filed with
the appropriate Government entity all Tax Returns and reports required to be
filed by or on behalf of it, including estimated tax and informational returns
and no Tax Returns have been amended. All Tax Returns are true, correct, and
complete.
(b) All Taxes (whether or not reflected in Tax Returns as
filed) payable by the Company with respect to all periods reflected on Tax
Returns have been fully and timely paid, and there are no grounds for the
assertion or assessment of any additional Taxes against the Company with respect
to such periods. All unpaid Taxes for all periods up to and including the
Closing Date (including any Taxes, if any, resulting from the transactions
contemplated hereby (including, without limitation, the Restructuring) or any
Section 338(h)(10) election) are properly accrued on the books of the Company.
Schedule 3.8 lists all Tax Returns for periods up to and including the Closing
Date (whether the period ends on such date) which have not been filed on or
before the Closing Date.
(c) Except as set forth on Schedule 3.8, the U.S. federal
income Tax Returns of the Company have not been audited, and to the best of
Seller's knowledge there are no audits of any Tax Returns in process or,
threatened. There is no waiver of any statute of limitations in effect with
respect to any Tax Returns.
(d) Except as set forth on Schedule 3.8, the Company is not
and never has been a member of an "affiliated group" within the meaning of
Section 1504 of the Code.
(e) True, correct and complete copies of all U.S. federal,
state, local or foreign Tax Returns, tax examination reports and statements of
deficiencies assessed against, or agreed to with respect to the Company with
respect to the last six years with the IRS have been made available to Buyer.
(f) The Company has complied with all Law relating to the
withholding of Taxes and the payment thereof (including, without limitation,
withholding of Taxes under Sections 1441 and 1442 of the Code, or similar
provisions under foreign laws), and has timely and properly withheld from
employee wages and paid over to the proper Government all amounts required to be
withheld and be paid over under applicable Law.
(g) The Company is not a party to any safe harbor lease within
the meaning of Section 168(f)(8) of the Code, as in effect prior to amendment by
the Tax Equity and Fiscal Responsibility Act of 1982. No assets of the Company
have been financed with or directly or indirectly secure any industrial revenue
bonds or debt the interest on which is tax-exempt under Section 103(a) of the
Code. The Company is not the borrower or guarantor of any outstanding industrial
revenue bonds.
(h) The Company is a section 338(h)(10) target within the
meaning of Treasury Regulation ss. 1.338(h)(10)-1(c)(1).
(i) The Company is not required to include in income any
adjustment under Section 481(a) of the Code by reason of a change in accounting
method and the Internal Revenue Service has not proposed any such adjustment or
change in accounting method. The Company does not have pending any private
letter ruling with the Internal Revenue Service.
(j) None of the property owned by the Company is tax-exempt
use property within the meaning of section 168(h) of the Code.
(k) No consent has been filed relating to the Company pursuant
to section 341(f) of the Code.
(l) As of the Closing Date, the Company will not be considered
a partner in any joint venture, partnership or other arrangement or contract
that could be treated as a partnership for federal income tax purposes.
(m) The Company has not made a consent dividend within the
meaning of section 565 of the Code.
(n) There are no liens for Taxes upon any assets of the
Company, except liens for Taxes not yet due and payable.
(o) All of the Company's payments to agents, consultants and
others have been in payment of bona fide fees and commissions in the ordinary
course and not as illegal or improper payments. The Company has not made any
payment to any person whomsoever or to any entity whatsoever with respect to
which a deduction could be disallowed under Section 162(c) of the Code. Neither
the IRS nor any other Government has initiated or, to the best of Seller's
knowledge, threatened any investigation of any payments made by the Company
alleged to have been of the type covered by this Section 3.8(o).
(p) The Company has properly and accurately reflected on its
books and records all compensation paid to and perquisites provided to or on
behalf of its agents and employees. Such compensation and perquisites have been
properly and accurately disclosed in the financial statements, proxy statements
and other public or private reports, records or filings of the Company, to the
extent required by Law. Neither the IRS nor any other Government has initiated
or, to the best of Seller's knowledge, threatened any investigation of any
deduction claimed by the Company with respect to any such compensation or
perquisites, the disclosure of such compensation or perquisites in any public or
private reports, records or filings of the Company, or otherwise relating to
such compensation or perquisite.
(q) The Company is not liable for taxes to any foreign country
taxing authority. The Company does not have and has not had a permanent
establishment in any foreign country, as defined in any applicable tax treaty or
convention between the United States and such foreign country.
(r) All transactions that could give rise to an understatement
of federal income tax (within the meaning of Section 6661 of the Code as it
applied prior to repeal) or an
understatement of tax (within the meaning of Section 6662 of the Code) were
reported in a manner for which there is substantial authority or were adequately
disclosed (or, with respect to Tax Returns filed before the Closing Date, will
be reported in such a manner or adequately disclosed) on the Tax Returns
required in accordance with Sections 6661(b) and 6662(d)(2)(B) of the Code.
(s) The Company has evidence of payment of all Taxes to a
foreign country paid or accrued from the date of formation of the Company.
(t) The Seller is not a foreign person within the meaning of
Section 1445(b)(2) of the Code and Treasury Regulations thereunder and shall so
certify upon Buyer's request.
(u) The Company has made a valid election to be treated as an
S corporation within the meaning of Section 1361 of the Code, and such election
has been in effect for each of the Company's taxable years ending on or before
the Closing Date. The Company has qualified and will continue to qualify as an S
Corporation at all times from such election to the Closing Date.
(v) The Company has not been subject to tax pursuant to
Section 1363(d) or Section 1374 of the Code at any time since election as an S
corporation up to and including the Closing Date.
(w) Each of the shareholders of the Company has included
within their gross income their allocable share of the Company's income since
the date of the election to be treated as an S Corporation within the meaning of
Section 1361 of the Code.
(x) The Company is not a U.S. real property holding company
within the meaning of section 897(c) of the Code.
3.9 Accounts Receivable. Set forth on Schedule 3.9 is a list of all the
accounts receivable of the Company as of November 30, 1997, which relate to the
PPO Business. Such accounts receivable are, and any accounts receivable arising
between such date and the Closing Date which relate to the PPO Business will be,
valid and subsisting and all such accounts receivable ("Accounts Receivable")
arose or will have arisen in the Ordinary Course of the business of the Company.
The Accounts Receivable are not and will not be on the Closing Date subject to
any counterclaim, set-off, defense or Lien. Except to the extent of any reserve
therefor on the Financial Statements, the Closing Balance Sheet or paid in full
prior to Closing, the Accounts Receivable are and will be current and fully
collectible. Any Accounts Receivable which have not been collected by the
Company within ninety (90) days from the Closing Date will be returned to Seller
and Seller will pay the Company (first, by set-off against amounts due or to
become due under the CPFC Note, then from amounts held under the Escrow
Agreement), the amount set forth on the Closing Balance Sheet for such Accounts
Receivable, net of any applicable reserve.
Buyer and Seller agree that the 90-day collection period set forth in
the last sentence of the preceding paragraph shall apply to Accounts Receivable
which are included in the Closing Balance Sheet, and shall not apply to accounts
of the Company's "self-▇▇▇▇/self-pay" clients on the Closing Date, a list of
which is set forth at Schedule 3.9(b) (it being understood that receivables of
such clients are not included in the Closing Balance Sheet). Buyer and Seller
agree that, with respect to payments by such "self-▇▇▇▇/self-pay" clients which
are received by the Company during the 120 days following the Closing Date and
which relate to a period prior to the Closing Date (and which are not included
in the Closing Balance Sheet), the Company shall retain all of such payments and
the principal balance of the CPFC Note shall be increased by the amount of such
payments retained (to the extent such a payment relates to a period prior to the
Closing Date). In the event any such payment by a "self-▇▇▇▇/self-pay" client
relates partly to a period preceding the Closing Date and partly to the Closing
Date or a period after the Closing Date, the payment will be pro rated based
upon the number of days prior to the Closing Date in the period to which the
payment relates divided by the total number of days in the entire period to
which such payment relates, and that portion of the payment which relates to the
period prior to the Closing Date shall be added to the principal balance of the
CPFC Note.
3.10 No Breach of Law or Governing Document. The Company is not or has
not been in default under or in breach or violation of any Law or the provisions
of any Government permit, franchise, or license or any provision of the
Organizational Documents. Except as set forth on Schedule 3.10, neither the
Company nor the Seller has received any notice alleging such default, breach or
violation. Neither the execution of this Agreement nor the Closing do or will
constitute or result in any such default, breach or violation.
3.11 Litigation. Except as set forth on Schedule 3.11, (a) there is no,
and there has not been any, suit, claim, litigation, proceeding (administrative,
judicial, or in arbitration, mediation or alternative dispute resolution),
Government or grand jury investigation, or other action (any of the foregoing,
"Action") pending or, to the best of the Seller's knowledge, threatened against
the Company, any of its property, any of the Company's shareholders, directors,
officers, agents, or other personnel in their respective capacities a such,
including without limitation any Action challenging, enjoining, or preventing
this Agreement, or the consummation of the transactions contemplated hereby; (b)
the Company is and has not been subject to any Order other than Orders of
general applicability; and (c) the Company has not been or to the best of the
Seller's knowledge been threatened to be subject to, and there are no grounds
for, any Action or Order relating to personal injury, death, or property or
economic damage arising from products or services of the Company.
3.12 Real Property - Owned. The Company owns no real property.
3.13 Personal Property - Owned. Schedule 3.13 sets forth as of November
30, 1997 a list of all the personal property used by the Company in the PPO
Business (the "Owned Assets"). The Company has, or immediately prior to the
Closing will have, good and marketable title to all Owned Assets, including all
personal property acquired after such date (except any subsequently sold in the
Ordinary Course of its business), and except as set forth on Schedule 3.13, the
Company at the Closing will hold such property free and clear of all Liens,
leases, options, covenants, conditions, agreements, claims, material
restrictions and other encumbrances of every kind, and there exists no
restriction on the use or transfer of such property.
3.14 Real and Personal Property - Leased. Except as set forth on
Schedule 3.14(a), the Company is not the lessor of any real or personal
property. The Company has made available to Buyer a true, correct and complete
copy of each lease identified on Schedule 3.14(a) and Schedule 3.14(b). The
premises or property described in said leases are presently occupied or used by
the Company as lessee under the terms of such leases. Except as set forth on
Schedule 3.14(a) and Schedule 3.14(b), all rentals due under such leases have
been paid and there exists no default by the Company or, to the best of the
Seller's knowledge, by any other party to such leases under the terms of such
leases and no event has occurred which, upon passage of time or the giving of
notice, or both, would result in any event of default by the Company or, to the
best of the Seller's knowledge, by any other party to such leases, or prevent
the Company from exercising and obtaining the benefits of any rights or options
contained therein. Except as set forth on Schedule 3.14(a) or Schedule 3.14(b),
the Company has all right, title and interest of the lessee under the terms of
said leases, free of all Liens and all such leases are valid and in full force
and effect. Schedule 3.14(b) identifies those items of personal property (and
related leases) that will be transferred by the Company in connection with the
Restructuring.
3.15 Necessary Property and Transfer of Shares. The Company is the sole
owner of all right, title, and interest in and to all the Owned Assets and all
property, tangible and intangible, used by it in, or together with the leased
property set forth on Schedule 3.14(b), necessary for it to transact, the PPO
Business in which it is now engaged and there exists no material restriction on
the use or transfer of such assets or property. The assets owned or leased by
the Company constitute all of the property and property rights used or necessary
for the conduct of the PPO Business in the manner and to the extent presently
conducted by the Company and as conducted from January 1, 1997. No such assets
or property are in the possession of others and the Company holds no property on
consignment. No consent or permit from any third party is necessary to, and
there exists no restriction on, the transfer of the Company Shares to Buyer or
the consummation of the transactions contemplated hereby. There exists no
condition, restriction or reservation affecting the title to or utility of the
assets of the Company which would prevent Buyer from utilizing such assets, or
any part thereof, to the same full extent that the Company might continue to do
so if the sale and transfer contemplated hereby did not take place.
3.16 Use and Condition of Property; Location. All the assets of the
Company used in the PPO Business are in good operating condition and repair as
reasonably required for their use as presently conducted or planned by the
Company, and conform to all applicable Laws, and no notice of any violation of
any Law, relating to any of such property or assets has been received by the
Company except such as have been fully complied with.
To the best of the Seller's knowledge, there is no proposed,
pending or threatened condemnation proceeding or similar action affecting the
activities or the assets of the Company
or with respect to any streets or public amenities appurtenant thereto or in the
vicinity thereof which would materially adversely affect the business condition
of the Company.
3.17 Licenses and Permits. The Company possesses all licenses, permits
and other approvals required for the conduct of its business, and each such
license or permit is valid and in full force and effect and upon Closing the
Company will have all right and authority to conduct the PPO Business pursuant
to such licenses and permits.
3.18 Environmental Matters. The Company has not received any
notification that Hazardous Materials have been generated, used, treated or
stored on, released or disposed of on, or transported to or from, any real
property owned or leased by the Company.
3.19 Contracts.
(a) Set forth on Schedule 3.19(i) is (1) a list of each
Contract to which the Company is a party which involves (A) a guaranty,
indemnity, surety, accommodation party or power of attorney, (B) joint venture,
(C) restrictions on competition, (D) collective bargaining, works council, or
union representation, or (E) a monetary obligation in excess of $10,000; and (2)
a copy of a current Company directory identifying each medical services
provider, hospital or other facility with whom the company has contracted with
to provide medical services or goods (collectively, all of the foregoing are the
"Material Contracts").
(b) Each of the Material Contracts is a valid, binding and
enforceable obligation of the Company and the other parties thereto. Except as
indicated on Schedule 3.19(ii), (i) the Company is not, (ii) to the extent it
would create a current or future liability of Buyer and/or the Company, neither
the Company nor Seller has been, and (iii) no other party to a Material Contract
is, in material breach or violation of or default under any Material Contract,
and no event has occurred that, through the passage of time or the giving of
notice, or both, would constitute, and neither the execution of this Agreement
nor the Closing hereunder do or will constitute or result in, such a breach,
violation or default on the part of any party thereto, cause the acceleration of
any obligation of the Company, any other party thereto or the creation of a Lien
upon any assets of the Company or the Company Shares, or require any consent
thereunder.
3.20 Licensed Properties. Schedule 3.20(i) hereto sets forth a true and
correct list, together with photocopies, of all outstanding licenses to which
the Company is a party or by which it is bound, whether as licensee or licensor,
on the date hereof (including without limitation any software licenses other
than commercial, off-the-shelf software used in the ordinary course of
business). Except as otherwise set forth in Schedule 3.20(ii) hereto, (i) the
Company has the right to use all of the property licensed by it under any such
licenses in accordance with the terms of such licenses, and (ii) any license
granted by the Company to any third-party is non-exclusive and any such
licensees are not and shall not be entitled to further sublicense, assign or
transfer the licensed property to others. Except as set forth in Schedule
20(iii) hereto, all of such licenses are in full force and effect and
enforceable in accordance with their respective terms. There exists no default
or event of default or event, occurrence, condition or act which, with the
giving of notice, the lapse of time or both, would become a default or
event of default thereunder, and the transactions contemplated by this Agreement
and the agreements related hereto will not effect a termination of or otherwise
interfere with the Company's rights under any such license, nor violate any term
or provision of any such license or incur any additional charge thereunder.
3.21 Intellectual Property. To the best of Seller's knowledge, set
forth on Schedule 3.21 is a complete list of the Intellectual Property Rights
owned, used, licensed, or assigned by or to the Company which is used in the PPO
Business. Except as set forth on Schedule 3.21:
(a) The Company is the sole and exclusive owner of, or has the
unrestricted right to use, any Intellectual Property reasonably necessary to
conduct the Company's PPO Business and operations, including such items as set
forth on Schedule 3.21, and all such items are valid and subsisting;
(b) The conduct of the business and operations of the Company
and the ownership, manufacture, purchase, sale, licensing and use of the
Company's products do not contravene, conflict with, violate or infringe upon
any patent, trademark, service ▇▇▇▇, copyright or other intellectual property
right of a third party and no proprietary information or trade secret has been
misappropriated by the Company from any third party. In addition, the use,
licensing or sale by or to the Company of any of the Intellectual Property does
not require the acquiescence, agreement or consent of any third party;
(c) The Intellectual Property reasonably necessary to conduct
the Company's PPO Business and operations, including such items as set forth on
Schedule 3.21, and the Company's products are not subject to a challenge or
claim of infringement, interference or unfair competition or other claim and, to
the best of the Seller's knowledge, the Intellectual Property reasonably
necessary to conduct the Company's PPO Business and operations, including such
items as set forth on Schedule 3.21, is not being infringed upon or violated by
any third party; and
(d) With respect to any software included in the Intellectual
Property, neither the Company nor the Seller has received written notice from
any software manufacturer or vendor that the occurrence in or use by such
software of dates on or after January 1, 2000 (the "Millennial Dates") will not
adversely affect the performance of the software with respect to date dependent
data, computations, output or other functions (including, without limitation,
calculating, computing and sequencing) and the software will create, store and
generate output data related to or including Millennial Dates without errors or
omissions.
3.22 Insurance. The Company has at all times maintained insurance as
required by Law or under any agreement to which it is or has been a party.
Schedule 3.22 sets forth the insurance maintained by the Company, together with
the amount of coverage for each policy, the premium due dates and the dates of
last payment.
3.23 Officers, Directors, Employees, and Consultants. Set forth on
Schedule 3.23 is a list of: (a) all current directors of the Company, (b) all
current officers (with office held) of the
Company engaged in activities which related to the PPO Business, (c) all
employees of the Company engaged in activities which related to the PPO
Business, (d) all current paid consultants to the Company, and (e) all retirees
and terminated employees of the Company for which the Company has any benefits
responsibility or other continuing or contingent obligation, together, in the
case, of (b), (c), (d), and (e) with the current rate of compensation and
benefits (if any) payable to each. At the time of the Closing, the Company will
not be indebted to any shareholder, director, officer or agent of the Company,
except for amounts due as normal salaries and wages (and excluding bonuses,
accrued vacation or sick time, or any other compensation) and in reimbursement
of ordinary expenses on a current basis.
3.24 Bank Accounts of the Company. Set forth on Schedule 3.24 is a list
of the locations and numbers of all bank accounts and safe deposit boxes
maintained by the Company, together with the names of all persons who are
authorized signatories or have access thereto.
3.25 Transactions with Related Persons. Except as set forth on Schedule
3.25, the Company has no Liabilities, contractual or otherwise, owed to or owing
from, directly or indirectly, the Seller or any Affiliate of the Company or the
Seller. Except as set forth on Schedule 3.25, no director, officer, Affiliate,
or shareholder of the Company has any financial interest, direct or indirect, in
any supplier or customer of, or other business which has any transactions or
other business relationship with the Company.
3.26 Labor Matters. Except as set forth on Schedule 3.26:
(a) The Company is not a party to or bound by any collective
bargaining, works council, union representation or similar agreement or
arrangement;
(b) The Company is not and has not engaged in any unfair labor
practice;
(c) There is no labor strike, dispute, slowdown, or stoppage
pending or, to the best of the Seller's knowledge, threatened against the
Company;
(d) No right of representation exists respecting the employees
of the Company;
(e) No collective bargaining agreement is currently being
negotiated and, to the best of Seller's knowledge, no organizing effort is
currently being made with respect to the employees of the Company; and
(f) No current or former employee of the Company has any claim
against the Company on account of or for (i) overtime pay, other than overtime
pay for the current payroll period, (ii) wages or salary (excluding current
bonus, accruals and amounts accruing under pension and profit-sharing plans) for
any period other than the current payroll period, (iii) vacation, time off or
pay in lieu of vacation or time off, other than that earned in respect of the
current fiscal year, or (iv) any violation of any Law relating to minimum wages
or maximum hours of work.
3.27 Employee Benefit Matters.
(a) Except as set forth on Schedule 3.27 hereto, the Company
is not a party to any Plan. True, correct and complete copies of all documents
creating or evidencing any Plan listed on Schedule 3.27 have been delivered to
Buyer.
(b) The Company has not made any contributions to any
multi-employer plan (as defined in ERISA '3(37) or ERISA '4001(a)(3)), the
Company has never been a member of a controlled group which contributed to any
such plan, and the Company has never been under common control with an employer
which contributed to any such plan.
(c) Each Plan complies with and has been administered,
operated, and maintained in compliance with, and, except as set forth on
Schedule 3.27(c), the Company has no direct or indirect liability under the
requirements provided by any and all statutes, orders or governmental rules or
regulations currently in effect, including but not limited to ERISA and the
Code, and applicable to the Plan, and no Plan is subject to Title IV of ERISA.
(d) The Company has no liability or obligation to provide
life, medical or other welfare benefits to former or retired employees, other
than under COBRA.
(e) Except as set forth on Schedule 3.27(e), the Company has
not terminated or taken action to terminate any employee benefit Plan, including
any employee benefit plan as defined in Section 3(3) of ERISA. All employee
benefit plan terminations have been carried out in accordance with all
provisions of the law and any rulings or regulations of any administrative
agency, including, without limitation, all applicable reporting and other
provisions of the Code and ERISA and with respect to the PBGC. The Company has
no liability to, and has not received notice alleging such liability from, any
person or entity, including without limitation the PBGC, any other government
agency or any participant in or beneficiary of any employee benefit plan, nor is
the Company liable for any excise, income or other tax or penalty as a result of
or in connection with such termination. The Company has obtained a favorable
determination letter from the Internal Revenue Service with respect to the
termination of each of such pension plans as defined in Section 3(2) of ERISA,
true, complete and correct copies of which have been delivered to Buyer. The
favorable determination letters were received after full and accurate disclosure
by the Company of all material facts to the appropriate government agencies.
(f) The statements of assets and liabilities of the Plans as
of the end of the most recent three fiscal years for which information is
available, and the statements of changes in fund balances, financial position
and net assets available for benefits under such Plan(s) for such fiscal years,
copies of which have been certified by the Company and furnished to Buyer,
fairly present the financial condition of such Plan(s) as of such date and the
results of operations thereof for the year ended on such date, all in accordance
with GAAP applied on a consistent basis, and the actuarial assumptions used for
funding purposes have not been changed since the last written report of
actuaries on such Plan(s), which written reports have been furnished to Buyer.
(g) Except as set forth on Schedule 3.27(g) hereto, the
Company is not a party to any Plan that is intended to qualify under Code
Section 401(a) and Code Section 501(a) and each such Plan and its related trust,
if any, are qualified under Code Section 401(a) and Code Section 501(a) and have
been determined by the IRS to qualify, and nothing has since occurred to cause
the loss of the Plan's qualification.
(h) All required reports and descriptions of each Plan
described in Schedule 3.27 (including IRS Form 5500 Annual Reports, Summary
Annual Reports and Summary Plan Descriptions) have been timely filed and
distributed.
(i) Any notices required by ERISA or the Code or any other
state or federal law or any ruling or regulation of any state or federal
administrative agency with respect to each Plan described in Schedule 3.27 have
been timely and appropriately given.
(j) All contributions with respect to the Plans for all
periods ending prior to the Closing Date (including periods from the first day
of the current plan year to the Closing Date) will be made prior to the Closing
Date by the Company and all members of the controlled group in accordance with
past practice and the recommended contribution in the applicable actuarial
report.
(k) All insurance premiums (including premiums to the PBGC)
have been paid in full, subject only to normal retrospective adjustments in the
ordinary course, with regard to the Plans for policy years or other applicable
policy periods ending on or before the Closing Date.
(l) As of the Closing Date, no Plan described in Schedule 3.27
and subject to Title IV of ERISA has benefit liabilities (as defined in ERISA
'4001(a)(16)) exceeding the assets of such Plan.
(m) No accumulated funding deficiency, if applicable, within
the meaning of ERISA '302 or Code Section 412 has been incurred with respect to
any Plan described in Schedule 3.27, whether or not waived;
(n) With respect to each Plan described in Schedule 3.27:
(i) no prohibited transactions (as defined in ERISA
ss.406 or Code Section 4975) have occurred,
(ii) no action, suit, grievance, arbitration or other
manner of litigation, or claim with respect to the assets of the Plan
(other than routine claims for benefits made in the ordinary course of
Plan administration for which Plan administrative review procedures
have not been exhausted) are pending or, to the best of the Company and
Seller's knowledge, threatened or imminent against or with respect to
the Plan, any Sponsor or fiduciary (as defined in ERISA ss.3(210)) of
the Plan (including any action, suit, grievance, arbitration or other
manner of
litigation, or claim regarding conduct which allegedly interferes with
the attainment of rights under the Plan),
(iii) neither the Sponsors nor any fiduciary has any
knowledge of any facts which would give rise to or could give rise to
any action, suit, grievance, arbitration or other manner of litigation,
or claim, and
(iv) the consummation of the transactions
contemplated herein will not give rise to the payment of any amount
that would not be deductible pursuant to the terms of section 280G of
the Code.
(o) Neither the Sponsors nor any of their directors, officers,
employees or any other fiduciary has any liability for failure to comply with
ERISA or the Code for any action or failure to act in connection with the
administration or investment of any Plan described in Schedule 3.27 hereto.
(p) No Plan described in Schedule 3.27 hereto, if subject to
Title IV of ERISA, has been completely or partially terminated.
(q) No Plan described in Schedule 3.27 hereof has been the
subject of a reportable event (as defined in ERISA ss.4043) as to which a notice
would be required to be filed with the PBGC.
(r) The PBGC has not instituted or threatened a proceeding to
terminate any Plan described in Schedule 3.27 hereof pursuant to Subtitle 1 of
Title IV of ERISA.
(s) There is no pending or, to the best of the Company and
Seller's knowledge, threatened legal action, proceeding or investigation against
or involving any Plan described in Schedule 3.27 hereof and there is no basis
for any legal action, proceeding or investigation.
(t) The Company does not have any liability (i) for the
termination of any single employer plan under ERISA ss.4062 or any multiple
employer plan under ERISA ss.4063, (ii) for any lien imposed under ERISA
ss.302(f) or Code Section 412(n), (iii) for any interest payments required under
ERISA ss.302(e) or Code Section 412(m), (iv) for any excise tax imposed by Code
Sections 4971 4972, 4977, or 4979, or (v) for any minimum funding contributions
under ERISA ss.302(c)(11) or Code Section 412(c)(11).
(u) All the Plans listed on Schedule 3.27 hereof, to the
extent applicable, are in compliance with Section 1862(b)(1)(A)(i) of the Social
Security Act and the Company does not have any liability for any excise tax
imposed by Code Section 5000.
(v) With respect to any Plan which is a welfare plan as
defined in Section 3(1) of ERISA: (i) each such Welfare Plan which is intended
to meet the requirements for tax-favored treatment under Subchapter B of Chapter
1 of the Code meets such requirements; (ii) there is no disqualified benefit (as
such term is defined in Code Section 4976(b)) which would
subject the Company or Buyer to a tax under Code Section 4976(a); and (iii) each
and every such Welfare Plan which is a group health plan (as such term is
defined in Code Section 162(i)(3)) complies and in each and every case has
complied with the applicable requirements of Code Section 4980B, Title XXII of
the Public Health Service Act and the applicable provisions of the Social
Security Act.
(w) To the extent applicable with respect to each Plan, true,
correct and complete copies of the most recent (i) determination letter and any
outstanding request for a determination letter; (ii) Form 5500 and attached
Schedule B (including any related actuarial valuation report) and with respect
to the last three Plan years for each Plan subject to Code Section 412; (iii)
Form 5310 and any related filings with the PBGC and with respect to the last six
Plan years for each Plan subject to Title IV of ERISA; (iv) ruling letter and
any outstanding request for a ruling letter with respect to the tax-exempt
status of any VEBA which is implementing such Plan; and (v) general notification
to employees of their rights under Code Section 4980B and form of letter(s)
distributed upon the occurrence of a qualifying event described in Code Section
4980B, in the case of a Plan that is a "group health plan" as defined in Code
Section 162(i) have been delivered to Buyer.
(x) All expenses and liabilities relating to all of the Plans
described in this Schedule 3.27 have been, and will on the Closing Date be fully
and properly accrued on the Company's books and records and the Company's
financial statements reflect all of such liabilities in a manner satisfying the
requirements of Financial Accounting Standards 87 and 88.
(y) Subject to all applicable laws, each Plan (including any
Plan covering former employees of the Company) may be amended or terminated by
the Company or Buyer on or at any time after the Closing Date.
3.28 Discrimination and Occupational Safety and Health. Except as set
forth on Schedule 3.28, no person has any claim, or basis for any Action
against, and no claim is pending or, to the best of the Seller's knowledge,
threatened against, the Company arising out of any Law relating to
discrimination in employment or employment practices or occupational safety and
health standards. Since January 1, 1993, neither the Company nor any Seller has
received any notice from any person alleging a violation by the Company of such
law or occupational safety or health standards.
3.29 Books and Records. The books of account, stock record books,
minute books, bank accounts and other corporate records of the Company are true,
correct and complete, have been maintained in accordance with good business
practices. The minute books and stock books of the Company have been made
available to Buyer and are true, correct and complete.
3.30 Disclosure. Each Schedule and each document attached to a Schedule
is true, correct and complete. No representation or warranty by Seller in this
Agreement or any Schedule referred to herein or in any agreement to be delivered
hereunder, and no written statement, certificate, or other writing furnished to
Buyer by or on behalf of Seller pursuant hereto or thereto contains or will
contain as of the Closing Date any untrue statement of a material fact or any
omission of a material fact necessary to make the respective statements
contained herein or therein, in light of the circumstances under which the
statements were made, not misleading.
3.31 Affiliates. Except for the Seller, the entities created in
connection with the Restructuring and as set forth on Schedule 3.31, the Company
has no Affiliates. For purposes of this Agreement, an "Affiliate" of a person
means any person or entity which is controlling, controlled by, or under common
control with, directly or indirectly through any person or entity, the person
referred to, and, if the person referred to is a natural person, any member of
such person's family.
3.32 Guarantees. Except as set forth on Schedule 3.32 hereto, the
Company is not a guarantor, indemnitor, surety or accommodation party or
otherwise liable for any indebtedness of any other Person, firm or corporation
except as endorser of checks received and deposited in the ordinary course of
business.
3.33 Brokers, Finders. Except for fees payable by Seller to Duff &
▇▇▇▇▇▇, no finder, broker, agent, or other intermediary, acting on behalf of the
Company or the Sellers, is entitled to a commission, fee, or other compensation
or obligation in connection with the negotiation or consummation of this
Agreement or any of the transactions contemplated hereby.
3.34 Total Liabilities. The Company's Liabilities, as of the completion
of the Closing, will not exceed $3,200,000.
3.35 Investor Suitability Representations of Seller. Seller hereby
represents and warrants to Buyer, and acknowledges and agrees, as follows:
(a) The CPFC Shares are being acquired by Seller for its own
account for investment and without a view to the resale thereof in a
distribution within the meaning of the Securities Act. No one other than Seller
has any interest in or any right to acquire the CPFC Shares;
(b) Seller's financial condition is such that he is able to
bear the risk of holding the CPFC Shares for an indefinite period of time and
the risk of loss of its entire investment in CPFC Shares;
(d) Buyer has made available all of its public SEC filings and
any and all additional information which Seller has requested in connection with
the transactions contemplated by this Agreement;
(e) Seller has such knowledge and experience in financial and
business matters that he is capable of evaluating the merits and risks of an
acquisition of the CPFC Shares and of making an informed investment decision
with respect thereto;
(f) Seller is aware that any transfer or other disposition of
the CPFC Shares is restricted by the Securities Act and applicable state
securities laws. Seller shall not offer for sale,
sell or otherwise transfer the CPFC Shares without complying with applicable
federal and state securities laws;
(g) Seller understands that the CPFC Shares have not been
registered and will not be registered under the Securities Act or any state
securities law in reliance on an exemption for private offerings, the
availability of which depends on the accuracy of the representations and
warranties of the Seller contained herein;
(h) Seller is an "accredited investor" as that term is defined
in Regulation D as promulgated by the SEC under the Securities Act; and
(i) Seller understands that Buyer intends to issue shares of
CPFC Common Stock to an existing shareholder of Buyer to fund a portion of the
Purchase Price hereunder, and that the shares so issued are anticipated to be
issued at a price per share of approximately $6.00 plus future services.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER;
----------------------------------------
CERTAIN COVENANTS OF BUYER
--------------------------
Buyer hereby makes the following representations and warranties to
Seller, each of which is true and correct on the date hereof and, except for
changes expressly permitted by this Agreement, shall be true and correct on the
Closing Date and each of which shall survive the Closing Date and the
transactions contemplated hereby to the extent set forth herein.
4.1 Corporate Existence and Power.
(a) The Buyer is a corporation duly organized and validly
existing under the laws of the State of Utah. A copy of the articles of
incorporation and bylaws of the Buyer, certified by its secretary, are attached
as Schedule 4.1.
(b) The Buyer has the corporate power and authority to own and
use its assets and to transact the business in which it is engaged, and holds
all franchises, licenses and permits required therefor. The Buyer is duly
licensed or qualified to do business as a foreign corporation and is in good
standing in each jurisdiction where such license or qualification is required.
(c) The Buyer has the corporate power to enter into this
Agreement, to perform its obligations hereunder, and to consummate the
transactions contemplated hereby. This Agreement constitutes a legal, valid and
binding obligation of the Buyer, enforceable against it in accordance with its
terms.
4.2 Organization and Qualification. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Utah, and has the requisite corporate power and authority to own, lease and
operate its assets and properties and to carry on its business as now being
conducted. Buyer is qualified to do business and in good standing in each
jurisdiction in which the properties owned, leased or operated by it or the
nature of the business
conducted by it makes such qualification necessary, except where the failure to
be so qualified and in good standing will not, when taken together with all
other such failures, have a material adverse effect on its business or financial
condition.
4.3 CPFC Common Stock. Buyer has 100,000,000 authorized shares of
Common Stock, no par value, of which 5,473,302 shares were outstanding on
September 30, 1997. Except as set forth on Schedule 4.2 , or in Buyer's Annual
Report on Form 10-KSB for the year ended March 31, 1997, and the exhibits and
schedules thereto (the "Buyer 10-K") and, together with any reports filed by
Buyer with the SEC under the Exchange Act after the Buyer 10-K and prior to the
date of this Agreement, the "Recent SEC Reports") or any of the Recent SEC
Reports, as of the date hereof, there are no outstanding subscriptions, options,
warrants, or other agreements under which Buyer has an obligation to issue,
deliver or sell additional shares of the capital stock of Buyer, except pursuant
to this Agreement and the issuance of certain options granted by Buyer to
certain employees, officers and directors by its Board of Directors. The CPFC
Shares to be issued to the Seller will when issued hereunder be duly authorized,
validly issued, fully paid, nonassessable and free of preemptive rights.
4.4 Authority; Non-Contravention; Approvals.
(a) Buyer has full corporate power and authority to enter into
this Agreement and to consummate the transactions contemplated hereby, the
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby have been duly authorized by the Board of
Directors of Buyer, and no other corporate proceedings on the part of Buyer are
necessary to authorize the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby. This Agreement has been
duly and validly executed and delivered by Buyer and, assuming the due
authorization, execution and delivery hereof by the other parties hereto,
constitutes a valid and legally binding obligation of Buyer enforceable against
it in accordance with its terms.
(b) Except as set forth in Schedule 4.3, the execution and
delivery of this Agreement by Buyer does not, and the consummation by Buyer of
the transactions contemplated hereby will not, violate, conflict with or result
in a breach of any provision of, or constitute a default (of an event which,
with notice or lapse of time or both, would constitute a default) under, or
result in the termination of, or accelerate the performance required by, or
result in a right of termination or acceleration under, or result in the
creation of any line, security interest, charge or encumbrance upon any of the
properties or assets of Buyer or any of its subsidiaries under any of the terms,
conditions or provisions of (i) the charters or Bylaws of Buyer or any of its
subsidiaries, (ii) any statute, law, ordinance, rule, regulation, judgment,
decree, order, injunction, writ, permit or license of any court or governmental
authority applicable to Buyer or any of its subsidiaries or any of their
respective properties or assets, and (iii) any note, bond, mortgage, indenture,
deed of trust, license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind to which Buyer or any of its
subsidiaries is now a party or by which Buyer or any of its subsidiaries or any
of their respective properties or assets may be bound or affected, excluding
from the foregoing clauses (ii) and (iii) such violations, conflicts, breaches,
defaults, terminations, accelerations or creations of liens, security interests,
charges or encumbrances that would not, in the aggregate, have a material
adverse effect on the business of Buyer taken as a whole.
4.5 Reports and Financial Statements. Since January 1, 1996, Buyer has
filed all forms, statements, reports and documents (including all exhibits,
amendments and supplements thereto) required to be filed by it under each of the
Securities Act, the Exchange Act, applicable laws and regulations of Buyer's
jurisdiction of incorporation and the respective rules and regulations
thereunder, all of which, to the best knowledge of Buyer, complied in all
material respects with all applicable requirements of the appropriate act and
the rules and regulations thereunder. Buyer has delivered to the Seller true and
complete copies of its (a) Annual Reports on Form 10-KSB, Quarterly Reports on
Form 10-QSB, and Current Reports on Form 8-K filed by Buyer with the SEC since
January 1, 1996 until the date hereof, and (b) all other reports or registration
statements filed by Buyer with the SEC since January 1, 1996, until the date
hereof (collectively, the "Buyer SEC Reports") and (d) audited consolidated
financial statements of Buyer for the fiscal year ended March 31, 1997, and its
unaudited consolidated financial statements for the six months ended September
30, 1997 (collectively, the "Recent Buyer Financial Statements"). As of their
respective dates, Buyer SEC Reports did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The financial statements of Buyer included
in the Buyer SEC Reports and the Recent Buyer Financial Statements
(collectively, the "Buyer Financial Statements") fairly present the financial
position of Buyer and its consolidated subsidiaries as of the dates thereof and
the results of their operations and cash flows for the periods then ended in
conformity with GAAP applied on a consistent basis (except as may be indicated
therein or in the notes thereto) subject, in the case of the unaudited interim
financial statements, to normal year-end and audit adjustments and any other
adjustments described therein.
4.6 Absence of Undisclosed Liabilities. Except as set forth in Schedule
4.5, or in the Buyer SEC Reports, or in connection with its financing of the
transactions contemplated by this Agreement, neither Buyer nor any of its
subsidiaries had at September 30, 1997, or has incurred since that date, any
liabilities or obligations (whether absolute, accrued, contingent or otherwise)
of any nature, except liabilities, obligations or contingencies (a) which are
accrued or reserved against in the Recent Buyer Financial Statements or
reflected in the notes thereto or (b) which were incurred after September 30,
1997, and were incurred in the ordinary course of business and consistent with
past practices.
4.7 Absence of Certain Changes or Events. Except as set forth in
Schedule 4.6 or in the Buyer SEC Reports, since March 31, 1997, there has not
been any material adverse change in the business, financial condition or results
of the operations of Buyer taken as a whole.
4.8 No Violation of Law. Except as disclosed in Schedule 4.7 or in the
Buyer SEC Reports, neither Buyer nor any of its subsidiaries is in violation of,
or, to the knowledge of Buyer, is under investigation with respect to or has
been given notice or been charged with any violation of, any law, statute,
order, rule, regulation, ordinance, or judgment of any Government
authority, except for violations which in the aggregate do not have a material
adverse effect on Buyer taken as a whole.
4.9 Litigation. Except as disclosed in the Buyer SEC Reports, the
Recent Buyer Financial Statements, or Schedule 4.8, (a) there are no claims,
suits, actions or proceedings pending or, to the knowledge of Buyer, threatened,
nor to the knowledge of Buyer are there any investigations or reviews pending or
threatened, against, relating to or affecting Buyer or any of its subsidiaries,
which, if adversely determined, could have a material adverse effect on Buyer
taken as a whole; (b) there have not been any developments since March 31, 1997,
with respect to such claims, suits, actions, proceedings, investigations or
reviews which individually or in the aggregate, is reasonably likely to have a
material adverse effect on Buyer taken as a whole.
4.10 Complete Disclosure. Neither this Agreement, nor any of the
certificates or documents required to be delivered by Buyer to the Seller under
this Agreement as a condition to Closing, taking together, contains or will
contain as of the Closing, a statement of a material fact that is untrue in any
material respect, or omits to state any material fact necessary in order to make
the statements contained herein and therein, in light of the circumstances under
which statements were made, not misleading in any material aspect.
4.11 Investment Representation. Buyer is acquiring the Company Shares
for its own account, for investment and without any view to resale or
distribution of the Company Shares or any portion thereof.
4.12 Brokers, Finders. No finder, broker, agent, or other intermediary,
acting on behalf of Buyer, is entitled to a commission, fee, or other
compensation or obligation in connection with the negotiation or consummation of
this Agreement or any of the transactions contemplated hereby.
4.13 Covenants Regarding Certain Leases. Buyer covenants and agrees
with Seller that, after the Closing, [(i) Buyer shall pay the scheduled lease
payments for the Seller's (or ARM's) Lease of one Jeep Cherokee vehicle
(identified on Schedule 1.1 hereto) and (ii)] through January 31, 1998, ARM
shall be permitted to occupy that portion of the Company's premises at ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, which ARM occupied on September 30,
1997, so long as ARM shall pay, within 10 days or the Company's invoice
therefor, its pro-rata share (based upon square footage of floor space) of
utilities, common area changes and other costs in effect on the Closing Date
under the Company's lease for such premises.
4.14 Covenant Regarding Accounts Receivable Collection. Buyer covenants
that it will, during the 90 days following the Closing Date, make a good faith
effort in the ordinary course of business, consistent with the usual practices
of Seller during periods prior to the Closing Date, to collect Accounts
Receivable outstanding on the Effective Date.
ARTICLE V
COVENANTS CONCERNING SELLER
---------------------------
Seller covenants and agrees with Buyer that, from and after the date of
this Agreement and until the Closing Date, Seller shall conduct, and shall cause
the Company to conduct, the Company's business in the Ordinary Course, subject
to the following provisions and limitations:
5.1 Operation of the PPO Business. Except with respect to the
Restructuring, without the prior written consent of Buyer, the Company shall
not:
(a) Increase or commit to increase compensation, benefits, or
other remuneration to or for the benefit of any employee, shareholder, director,
officer, or agent of the Company, or any benefits granted under any Plan with or
for the benefit of any such employee, shareholder, director, officer, or agent,
except for increases in salary, wages or benefits in the Ordinary Course.
(b) Enter into any employment Contract or collective
bargaining agreement.
(c) Enter into any Contract or commitment or engage in any
transaction which is not in the Ordinary Course of its business or which is
inconsistent with past practices.
(d) Sell or dispose of or encumber any of its assets, except
sales of inventory in the Ordinary Course of its business.
(e) Enter into any Contract for any capital expenditure or
enter into any lease of capital equipment or real estate.
(f) Enter into any Contract involving more than [$5,000] or
enter into any series of Contracts with one party or affiliated group of parties
involving more than [$5,000] in the aggregate.
(g) Other than trade payables incurred in the Ordinary Course
of its PPO business, create, assume, incur or guarantee any indebtedness
(including letters of credit and foreign exchange contracts).
(h) Declare or pay any dividend or make any sale of, or
distribution in respect of, its capital stock or directly or indirectly redeem,
purchase or otherwise acquire any of its capital stock, or issue any of its
capital stock or other securities.
(i) Make any amendments to or changes in its articles or
certificate of incorporation or by-laws.
(j) Perform any act, or attempt to do any act, or permit any
act or omission to act, which will cause a breach of any Material Contract.
(k) Without advising Buyer in writing, take any action or
incur any liability or obligation which, if taken or incurred prior to the date
of this Agreement, would be required to be disclosed on any Schedule hereto.
5.2 Preservation of PPO Business. The Company shall carry on its
business relating to the PPO Business substantially in the same manner as
heretofore conducted and use its best efforts to keep the Business intact,
including its present employees and present relationships with customers,
suppliers of medical goods and services, other suppliers and others having
business relations with the Company.
5.3 Insurance and Maintenance of Property. The Company shall cause all
of the assets used in the PPO Business to continue to be insured under existing
policies, with no material changes in such policies as they exist on the date
hereof, including without limitation, extent of coverage and amount of
deductible.
5.4 Full Access. Representatives of Buyer shall have full access at all
reasonable times to all personnel, premises, properties, books, records,
contracts, tax records, documents and data of the PPO Business, and Seller and
the Company shall furnish to Buyer any information in respect of the PPO
Business as Buyer may from time to time reasonably request.
5.5 Books, Records and Financial Statements. The Company shall maintain
its books and financial records in accordance with GAAP. Said books and
financial records shall fairly and accurately reflect the operations of the PPO
Business and the Restructuring. Seller shall furnish to Buyer promptly, as
available, financial statements and operating reports of the Business since
March 31, 1995, all of which shall be prepared in accordance with GAAP.
5.6 Other Governmental Filings. Seller shall cooperate with Buyer in
making, as soon as practicable following the execution hereof, filings required
by any Government, if any, in connection with the transactions contemplated by
this Agreement. All information provided by the Company and the Seller in
connection with such filings will be true, accurate and complete in all material
respects.
5.7 Management of Business. From and after the date of this Agreement,
Seller shall have no active role in the day-to-day management of the business
and affairs of the Company, and the day-to-day business and affairs of the
Company shall be conducted by the management team of the Company employed on the
date hereof.
5.8 Restructuring. The Company shall keep the Buyer informed of the
progress of the transactions constituting the Restructuring, and the Company
shall on a weekly basis advise the Buyer of all transfers and proposed transfers
of assets and liabilities which the Company proposes to effect in connection
with the Restructuring.
ARTICLE VI
COVENANT NOT TO COMPETE
-----------------------
6.1 Territory. The Seller acknowledges and agrees that the Acquired
Business is conducted throughout the Territory and that the Company's reputation
and goodwill are an integral part of its business success throughout the
Territory. If the Seller deprives Buyer of the Company's goodwill or in any
manner utilizes its reputation and goodwill in competition with Buyer, Buyer
will be deprived of the benefits it has paid for pursuant to this Agreement.
Accordingly, as an inducement for Buyer to enter into this Agreement, the Seller
agrees that for a period ending two (2) years after the Closing Date (the
"Non-competition Period"), Seller shall not, without Buyer's prior written
consent, directly or indirectly, own, manage, operate, assist, join, control or
participate in the ownership, management, operation or control of, or be
connected as a director, officer, employee, partner, consultant or otherwise
with, any profit or non-profit business or organization in the Territory, that,
directly or indirectly, competes with, or is about to compete with, the
businesses of the Company and its Affiliates as such businesses shall exist
immediately prior to the Closing or as contemplated on the Closing Date to be
developed by the Company and its Affiliates during the Non-competition Period(it
being agreed that such businesses of the Company existing immediately prior to
the Closing and contemplated to be developed shall not include for purposes of
this Section the businesses conducted by ARM or the other businesses transferred
by the Company in connection with the Restructuring). In addition, during the
Non-competition Period, Seller shall not have an equity interest in any such
firm or business other than as a 5% or less shareholder of a public corporation.
In the event the agreement in this Article VI shall be determined by any court
of competent jurisdiction to be unenforceable by reason of its extending for too
great a period of time or over too great a geographical area or by reason of its
being too extensive in any other respect, it shall be interpreted to extend only
over the maximum period of time for which it may be enforceable and/or over the
maximum geographical area as to which it may be enforceable and/or to the
maximum extent in all other respects as to which it may be enforceable, all as
determined by such court in such action. Notwithstanding anything contained in
this Agreement to the contrary, Seller shall be permitted to reprice claims in
conjunction with "Payment Express" and other similar products and services
provided the repricing rates are provided to Seller by the provider of services,
such as a hospital or other medical provider.
6.2 No Solicitation. During the Non-competition Period, Seller shall
not (a) solicit, raid, entice, induce or contact, or attempt to solicit, raid,
entice, induce or contact, any person, firm or corporation that is a customer of
the Company and its Affiliates to become a customer or client of any other
person, firm or corporation for products or services the same as, or competitive
with, those products and services sold, rented, leased, rendered or otherwise
made available to customers or clients by the Company and its Affiliates as of
the Closing Date, as well as products and services in any stage of development
by the Company and its Affiliates as of the Closing Date although not yet
commercialized or not generally available, or approach any such person, firm or
corporation for such purpose or authorize the taking of such actions by any
other person, firm or corporation or assist or participate with any such person,
firm or corporation in taking such action, (it being agreed that such products
or services of the Company existing immediately prior to the Closing and in any
stage of development shall not include for
purposes of this Section the products and services of ARM or the other
businesses transferred by the Company in connection with the Restructuring) or
(b) solicit, raid, entice, induce or contact, or attempt to solicit, raid,
entice, induce or contact, any person, firm or corporation that currently is or
at any time during such Non-competition Period shall be (or, in the case of
termination is at the time of termination), an employee, agent or consultant of
or to the Company to leave the Company or do anything from which Seller is
restricted by reason of this Article VI, and Seller shall not approach any such
employee, agent or consultant for such purpose or authorize or participate with
the taking of such actions by any other person, firm or corporation or assist or
participate with any such person, firm or corporation in taking such action.
Buyer acknowledges that, for purposes of this Section, persons who are employees
of ARM at the time of the Closing shall not be employees of the Company.
6.3 Confidential Information. The Seller acknowledges that the
Confidential Information (defined below) of the Company is valuable and
proprietary to the business of the Company and agrees not to, directly or
indirectly, use, publish, disseminate, describe or otherwise disclose any
Confidential Information or Developments (defined below) of the Company without
the prior written consent of Buyer and/or its Affiliates. For purposes of this
Agreement, "Confidential Information" shall mean with respect to the Company all
confidential information of the Company relating to the Acquired Business
existing on or prior to the Closing Date that is not otherwise publicly
disclosed or generally available (other than as a result of a disclosure by a
Company employee), including information entrusted to the Company by others.
Without limiting the generality of the foregoing, Confidential Information shall
include: (a) customer and client lists, lists of potential customers and clients
and details of agreements with customers and client; (b) acquisition, expansion,
marketing, financial and other business information and plans of the Company;
(c) research and development of the Company; (d) computer programs and computer
software of the Company; (e) sources of supplies of the Company; (f) identity of
specialized consultants and contractors and Confidential Information developed
by them for the Company; (g) purchasing, operating and other costs data of the
Company; (h) special customer and client needs, cost and pricing data of the
Company; and (i) employee information with respect to the Company. Confidential
Information with respect to the Company also includes information recorded in
manuals, memoranda, projections, minutes, plans, drawings, designs, formula
books, specifications, computer programs and records of the Company, whether or
not legended or otherwise identified as Confidential Information, as well as
information that is the subject of meetings and discussions and not so recorded.
For purposes of this Agreement, "Developments" shall mean all data, concepts,
ideas, findings, discoveries, developments, programs, designs, inventions,
improvements, methods, practices and techniques, whether or not patentable,
relating to the present and planned, future activities and the products and
services of the Company. For purposes of this Agreement, Confidential
Information with respect to the Company and Developments with respect to the
Company do not include any matters which relate solely to the business and
assets which will be transferred by the Company in connection with the
Restructuring.
6.4 Remedies. The Seller acknowledges that a breach of the covenants
contained in this Article VI will cause irreparable damage to Buyer, the exact
amount of which will be difficult to ascertain, and that the remedies at law for
any such breach will be inadequate.
Accordingly, the Seller agrees that if any person breaches the covenants
contained in this Article VI in addition to any other remedy that may be
available at law or in equity, Buyer shall be entitled to specific performance
and injunctive relief, without posting bond or other security.
ARTICLE VII
ADDITIONAL COVENANTS OF THE PARTIES
-----------------------------------
7.1 Confidentiality. The Parties to this Agreement shall not make any
public disclosure of the terms hereof or the transactions contemplated hereby
without the prior written consent of the other Parties, except as required by
law. If the Closing does not occur, Buyer, and if the Closing does occur, Seller
shall not disclose to any third person any Confidential Information relating to
the business of the Company without the prior written consent of the other
Party.
7.2 Further Assurances. From and after the Closing, the Parties shall
do such acts and execute such documents and instruments as may be reasonably
required to make effective the transactions contemplated hereby.
7.3 Seller's Registration Rights. From and after the Closing Date,
Seller shall have the registration rights with respect to the CPFC Shares set
forth on Schedule 7.3.
ARTICLE VIII
CONDITIONS TO BUYER'S OBLIGATIONS
---------------------------------
The obligations of Buyer to consummate the transactions provided for in
this Agreement shall be subject to the satisfaction of each of the following
conditions on or before the Closing Date, subject to the right of Buyer to waive
any one or more of such conditions:
8.1 Representations and Warranties of Seller. The representations and
warranties of Seller contained in this Agreement and in the certificates and
papers to be delivered to Buyer pursuant hereto shall be true and correct in all
respects on the date hereof and on the Closing Date (except for changes
specifically permitted hereunder).
8.2 Performance of this Agreement. The Seller and the Company shall
have duly performed or complied with all of the obligations to be performed or
complied with them by under the terms of this Agreement on or prior to the
Closing Date.
8.3 Material Adverse Change. There shall have been no material adverse
change, actual or threatened, in the condition (financial or otherwise) of the
Company or the Company's PPO business (including relationships with customers or
third-party providers), whether or not covered by insurance.
8.4 Certificate of Seller. Buyer shall have received a certificate
signed by the Seller dated as of the Closing Date and subject to no
qualification certifying that the conditions set forth in Sections 8.1, 8.2,
8.3, 8.8, 8.9, 8,10, 8.11 and 8.14 hereof have been fully satisfied. Such
certificate shall be deemed a representation and warranty of the Seller under
this Agreement.
8.5 Opinion of Counsel. Buyer shall have received from ▇▇▇▇▇▇ ▇. ▇▇▇▇
and Associates, Ltd. counsel to Seller, an opinion of such counsel, dated the
Closing Date, in substantially the form attached hereto as Exhibit C.
8.6 Resignations. Buyer shall have received the written resignation of
each member of the Board of Directors and each officer of the Company.
8.7 Restructuring Complete. The Company shall have completed the
Restructuring and evidence thereof satisfactory to Buyer shall have been
delivered to the Buyer.
8.8 No Lawsuits. No Action, other than an Action set forth on Schedule
3.11, shall be to the Seller's knowledge threatened or pending before or by any
Government concerning this Agreement or the consummation of the transactions
contemplated hereby, or in connection with any claim against the Company. No
Government or Government agency shall have threatened or directed any request
for information concerning this Agreement, the transaction contemplated hereby
or the consequences or implications of such transaction to Buyer, the Company or
the Seller, or any officer, director, employee or agent of the Buyer or the
Company.
8.9 No Restrictions. There shall exist no conditions, restrictions or
reservations affecting the title to or utility of the assets of the Company or
the Company Shares which would prevent Buyer from utilizing such assets and the
Company Shares, or any part thereof, to the same full extent that the Seller and
the Company did so prior to the Closing.
8.10 Consents. All consents and approvals necessary to insure that
Buyer will continue to have the same full rights in respect to the assets of the
Company and the Company Shares as the Seller and the Company had immediately
prior to the consummation of the transaction contemplated hereunder shall have
been obtained.
8.11 Releases. Prior to or on the Closing Date, the Seller shall have
delivered to Buyer the written release of all Liens relating to the assets of
the Company and the Company Shares executed by the holder of or parties to each
such Lien. The releases shall be satisfactory in substance and form to release
the Lien for which it is intended.
8.12 Stock Certificates. The Buyer shall receive from the Seller on the
Closing Date certificates representing the Company Shares endorsed to the Buyer
or in blank.
8.13 Closing Balance Sheet. The Seller shall have caused the Company to
deliver the Closing Balance Sheet to the Buyer prior to the Closing Date and the
numbers on the Closing Balance Sheet shall accurately reflect the operations of
the Company.
8.14. Working Capital of the Company. The Liabilities of the Company
shall not exceed $3,200,000 as presented in the Closing Balance Sheet.
8.15 Financing Availability. Buyer shall have entered into a loan or
other agreement with a financial institution or other Person pursuant to which
funds in an amount of at least $2.5 million are available to the Buyer at the
Closing for the purpose of paying a portion of the Purchase Price.
8.16 Proforma Financial Information. The Company shall have delivered
to Buyer, not later than the third business day preceding the Closing Date, a
balance sheet of the Company as at September 30, 1997, showing actual results
after giving pro forma effect to the Restructuring in accordance with GAAP.
8.17 Further Assurances. The Buyer shall have received such further
instruments and documents as may reasonably be required to carry out the
transactions contemplated hereby and to evidence the fulfillment of the
agreements herein contained and the performance of all conditions to the
consummation of such transactions.
ARTICLE IX
CONDITIONS TO SELLER'S OBLIGATIONS
----------------------------------
The obligations of Seller to consummate the transactions provided for
in this Agreement shall be subject to the satisfaction of each of the following
conditions on or before the Closing Date, subject to the right of Seller to
waive any one or more of such conditions:
9.1 Representations and Warranties of Buyer. The representations and
warranties of Buyer contained in this Agreement and in the certificates and
papers to be delivered to Seller pursuant hereto shall be true and correct in
all material respects on the date hereof and on the Closing Date (except for
changes specifically permitted hereunder).
9.2 Performance of this Agreement. Buyer shall have duly performed or
complied with all of the obligations to be performed or complied with by it
under the terms of this Agreement on or prior to the Closing Date.
9.3 Certificate of Buyer. Seller shall have received a certificate
signed by an officer of Buyer dated as of the Closing Date and subject to no
qualification certifying that the conditions set forth in Sections 9.1, 9.2,
9.4, 9.6, 9.7 and 9.8 hereof have been fully satisfied. Such certificate shall
be deemed a representation and warranty of Buyer hereunder.
9.4 Material Adverse Change. There shall have been no material adverse
change, actual or threatened, in the condition (financial or otherwise) of Buyer
and its subsidiaries, taken as a whole.
9.5 Opinion of Counsel. Seller shall have received from ▇▇▇▇▇ ▇▇▇▇ LLP,
counsel to Buyer, an opinion of such counsel, dated the Closing Date, in
substantially the form attached hereto as Exhibit D.
9.6 No Lawsuits. No Action, other than an Action set forth on Schedule
4.8, shall be to Buyer's knowledge threatened or pending before or by any
Government authority concerning this Agreement or the consummation of the
transactions contemplated hereby, or in connection with any claim against the
Company. No Government or Government agency shall have threatened or directed
any request for information concerning this Agreement, the transaction
contemplated hereby or the consequences or implications of such transaction to
Buyer, the Company or the Seller, or any officer, director, employee or agent of
the Buyer or the Company.
9.7 No Restrictions. There shall exist no conditions, restrictions or
reservations affecting the title to or utility of CPFC Shares which would
prevent Seller from utilizing the CPFC Shares, except that the CPFC Shares shall
be "restricted securities" as that phrase is defined in Rule 144 under the
Securities Act.
9.8 Consents. All consents and approvals necessary to insure that Buyer
will continue to have the same full rights in respect to the assets of the
Company and the Company Shares as the Seller and the Company had immediately
prior to the consummation of the transaction contemplated hereunder shall have
been obtained.
9.9 Stock Certificates. Buyer on the Closing Date shall have issued to
the transfer agent for the CPFC Common Stock an irrevocable instruction to issue
to Seller stock certificates representing the CPFC Shares.
9.10 CPFC Note and Security Agreement. Buyer shall have received the
cash portion of the Purchase Price, and Buyer shall have executed and delivered
to Seller the CPFC Note and the Security Agreement.
9.11 Payment of Purchase Price. Seller shall receive from Buyer on the
Closing Date the Purchase Price.
9.12 Further Assurances. Seller shall have received such further
instruments and documents as may reasonably be required to carry out the
transactions contemplated hereby and to evidence the fulfillment of the
agreements herein contained and the performance of all conditions to the
consummation of such transactions.
ARTICLE X
INDEMNIFICATION
---------------
10.1 Indemnification of Buyer. Subject to the limitations set forth in
Section 10.5 below, Seller shall hold Buyer, and, from and after the Closing,
the Buyer, the Company, and the shareholders, directors, officers, partners,
successors, assigns, and agents of each of them in their capacities as such (the
"Buyer Indemnified Persons"), harmless and indemnify each of them from and
against, and Sellers waive any claim for contribution or indemnity with respect
to, any and all claims, losses, damages, liabilities, expenses or costs
("Losses"), plus reasonable attorneys' fees and expenses incurred in connection
with Losses and/or enforcement of this Agreement (in all, "Indemnified Losses")
incurred or to be incurred by any of them to the extent resulting from or
arising from:
(a) The breach of any agreement, covenant, representation,
warranty, or other obligation of the Company or the Seller made or incurred
under or pursuant to this Agreement or any document delivered pursuant hereto;
(b) The assertion of any claim for injury, death, property or
economic damage, or other product or strict liability claim arising from the
design, manufacture, sale or distribution of or exposure to any product or
component thereof or the provision of any service by the Company or the Seller
prior to the Closing Date;
(c) Any violation by the Company or the Seller of or liability
under any Environmental Law, the Occupational Safety and Health Act or any other
U.S. federal, state or local or any foreign statute, regulation, ordinance or
other requirement regulating or otherwise affecting public health, employee
health and safety, or the environment, including any such liability arising out
of the conduct prior to the Closing Date which is imposed upon Buyer or the
Company;
(d) Seller's actions or failures to act that have resulted in
the disposal or release of any Hazardous Material of any kind, including any
such liability arising prior to the Closing Date which is imposed upon the Buyer
or the Company; and /or
(e) Liability of the Company for its own Taxes or its
liability, if any for Taxes of others, including, but not limited to the Seller
or any Affiliate (for example, by reason of transferee liability or application
of Treas. Reg. Section 1.1502-6), damage or Indemnified Losses payable with
respect to Taxes claimed or assessed against the Company (i) for or relating
directly or indirectly to the Restructuring, (ii) for any taxable period ending
on or before the Closing Date or as a result of this transaction (including any
Section 338(h)(10) election) (except to the extent and in such amount as such
Taxes are reflected in the Closing Balance Sheet) or (iii) for any taxable
period resulting from a breach of any of the representations or warranties
contained in Section 3.8 hereof. Seller also agrees to indemnify, defend and
hold harmless the Buyer Indemnified Persons from and against any and all
Indemnified Losses sustained in a tax period of the Company ending after the
Closing Date arising out of the settlement or other resolution (without the
consent of the Buyer or the Company) of a proposed tax adjustment which relates
to a tax period ending on or before the Closing Date. For example, if Seller
agrees in an income tax audit to reduce the depreciable basis of property
acquired by the Company before the Closing Date, Seller shall be liable for any
additional Taxes due from the Company by reason of reduced depreciation
deductions.
10.2 Indemnification of Seller. Subject to the limitations set forth in
Section 10.5 below, the Buyer shall hold the Seller and its successors, assigns
and agents (the "Seller Indemnified Persons") harmless and indemnify each of
them from and against any and all Indemnified Losses incurred or to be incurred
by any of them, to the extent resulting from or arising out of (i) any breach or
violation of Buyer's representations, warranties, covenants and agreements
contained in this Agreement, including the provisions of this Article X, or
other obligations of Buyer made or incurred under or pursuant to this Agreement
or any document delivered pursuant to this Agreement, or (ii) the operation of
the business of the Company following the Closing Date.
10.3 Notice of Claim. In the event that the Buyer seeks indemnification
on behalf of a Buyer Indemnified Person, or Seller seeks indemnification on
behalf of a Seller Indemnified Person, such Party seeking indemnification (the
"Indemnified Party") shall give written notice to the indemnifying Party (the
"Indemnifying Party") specifying the facts constituting the basis for such claim
and the amount, to the extent known, of the claim asserted. Subject to the terms
hereof, the Indemnifying Party shall pay the amount of any valid claim not more
than ten days after the Indemnified Party provides notice to the Indemnifying
Party of such amount.
10.4 Right to Contest Claims of Third Persons. If an Indemnified Party
is entitled to indemnification hereunder because of a claim asserted by any
claimant (other than an indemnified person hereunder) ("Third Person"), the
Indemnified Party shall give the Indemnifying Party reasonably prompt notice
thereof after such assertion is actually known to the Indemnified Party;
provided, however, that the right of a person to be indemnified hereunder in
respect of claims made by a Third Person shall not be adversely affected by a
failure to give such notice unless, and then only to the extent that, an
Indemnifying Party is irrevocably and materially prejudiced thereby. The
Indemnifying Party shall have the right, upon written notice to the Indemnified
Party, and using counsel reasonably satisfactory to the Indemnified Party, to
investigate, secure, contest, or settle the claim alleged by such Third Person
(a "Third-Person Claim"), provided that the Indemnifying Party has
unconditionally acknowledged to the Indemnified Party in writing its obligation
to indemnify the persons to be indemnified hereunder with respect to such
Third-Person Claim; the Indemnified Party may thereafter participate in (but not
control) the defense of any such Third-Person Claim with its own counsel at its
own expense, unless separate representation is necessary to avoid a conflict of
interest, in which case such representation shall be at the expense of the
Indemnifying Party. Unless and until the Indemnifying Party so acknowledges its
obligation to indemnify, the Indemnified Party shall have the right, at its
option, to assume and control defense of the matter and to look to the
Indemnifying Party for the full amount of the reasonable costs of defense. The
failure of the Indemnifying Party to respond in writing to the aforesaid notice
of the Indemnified Party with respect to such Third-Person Claim within twenty
(20) days after receipt thereof shall be deemed an election not to defend the
same. If the Indemnifying Party does not so acknowledge its obligation to
indemnify and assume the defense of any such Third-Person Claim, (a) the
Indemnified Party may defend against such claim, in such manner as it may
reasonably deem appropriate, including, but not limited to, settling such claim,
after giving notice of the same to the Indemnifying Party, on such terms as the
Indemnified Party may reasonably deem appropriate, and (b) the Indemnifying
Party may participate in (but not control) the defense of such action, with its
own counsel at its own expense. If the Indemnifying Party thereafter seeks to
question the manner in which the Indemnified Party defended such Third-Person
Claim or the amount or nature of any such settlement, the Indemnifying Party
shall have the burden to prove by clear and convincing evidence that conduct of
the Indemnified Party in the defense and/or settlement of such Third-Person
Claim constituted gross negligence or willful misconduct. The Parties shall make
available to each other all relevant information in their possession relating to
any such Third-Person Claim and shall cooperate in the defense thereof.
10.5 Limitations on Indemnity.
(a) The representations and warranties of the parties
contained in Articles III and IV herein shall survive the Closing Date. Claims
for indemnification shall only be valid to the extent that such claims are made
within the period ending on April 30, 1999, provided however, that claims based
on the representations and warranties set forth in Section 3.3(a), 3.3(b) and
3.8 shall not be limited as to time.
(b) Sellers shall have no obligation to indemnify Buyer
Indemnified Persons in respect of Indemnified Losses resulting from or arising
out of breaches by Sellers of the representations and warranties contained in
Article III until all Indemnified Losses in respect of such breaches exceed
$75,000 in the aggregate (except the representations and warranties contained in
Sections 3.3, 3.8, 3.15 and 3.18 hereof, as to which the foregoing $75,000
limitation shall not apply), and then to the full extent of such Indemnified
Losses.
10.6 Right of Set-Off Upon notice to Seller specifying in reasonable
detail the basis for such set-off, Buyer may set off any amount to which it may
be entitled under this Section 10 against amounts otherwise payable under the
CPFC Note. The exercise of such right of set-off by Buyer in good faith, whether
or not ultimately determined to be justified, will not constitute an event of
default under the CPFC Note or any instrument securing the CPFC note. Neither
the exercise of nor the failure to exercise such right of set-off will
constitute an election of remedies or limit Buyer in any manner in the
enforcement of any other remedies that may be available to it.
ARTICLE XI
MISCELLANEOUS PROVISIONS
------------------------
11.1 Notice. All notices, requests, demands, and other communications
required or permitted under this Agreement shall be in writing and shall be
deemed to have been duly given and made upon being delivered either by courier
or fax delivery (during normal business hours of the recipient and with
verification of transmission to the Party for whom it is intended, provided that
a copy thereof is deposited, postage prepaid, certified or registered mail,
return receipt requested, in the United States mail, bearing the address shown
in this Section 11.1 for, or such other address as may be designated in writing
hereafter by, such Party:
If to Buyer:
Champion Financial Corporation
▇▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
With copies to:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇, Esq.
▇▇▇▇▇ ▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
If to Seller:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
With a copy to:
▇▇▇▇▇▇ ▇. ▇▇▇▇, Esq.
▇▇▇▇▇▇ ▇. ▇▇▇▇ and Associates, Ltd.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
11.2 Entire Agreement. This Agreement and the Schedules and Exhibits
hereto embody the entire agreement and understanding of the parties hereto with
respect to the subject matter hereof, and supersede all prior and
contemporaneous agreements and understandings relative to such subject matter.
11.3 Assignment; Binding Agreement. This Agreement and various rights
and obligations arising hereunder shall inure to the benefit of and be binding
upon Buyer, its successors, and permitted assigns and Seller, its successors,
and permitted assigns. Neither this Agreement nor any of the rights, interests,
or obligations hereunder shall be transferred, delegated, or assigned (by
operation of law or otherwise) by either of the Parties hereto without the prior
written consent of the other Party (which consent shall not be unreasonably
withheld).
11.4 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
11.5 Headings; Interpretation. The article and section headings
contained in this Agreement are inserted for convenience only and shall not
affect in any way the meaning or interpretation of the Agreement. Each reference
in this Agreement to an Article, Section, Schedule or Exhibit, unless otherwise
indicated, shall mean an Article or a Section of this Agreement or a Schedule or
Exhibit attached to this Agreement, respectively. References herein to "days",
unless otherwise indicated, are to consecutive calendar days. Both Parties have
participated substantially in the negotiation and drafting of this Agreement and
agree that no ambiguity herein should be construed against the draftsman.
11.6 Expenses. Seller (and not the Company) shall pay all costs and
expenses incurred on behalf of Seller and/or the Company in connection with the
negotiation, preparation and execution of this Agreement and the consummation of
the transactions contemplated hereby, including, without limitation, fees and
expenses of attorneys, accountants and Duff & ▇▇▇▇▇▇ Securities. Buyer shall be
responsible for the fees and expenses of KPMG Peat Marwick in connection with
that firm's audit of the Seller's financial statements at and for all periods
ended March 31, 1997.
11.7 Termination of Agreement. This Agreement and the transactions
contemplated hereby may be terminated prior to the Closing Date only as follows:
(a) By mutual consent of Buyer and Seller.
(b) By either Buyer or Seller if the Closing shall not have
occurred on or before December 15, 1997, provided said date may be extended to
December 31, 1997 at Buyer's option by Buyer providing Seller with written
notice of its election to extend together with $125,000 to be deposited together
with the funds held pursuant to that certain ▇▇▇▇▇▇▇ Money Deposit Agreement
dated December 2, 1997, or such other date, if any, as Buyer and Seller shall
agree upon.
(c) If, on or before December 31, 1997, Buyer provides Seller
with written notice that it has determined, in its sole discretion, that the
transaction contemplated hereby has become inadvisable or impractical by reason
of the institution or threat by any party to this Agreement or by any
governmental authority , of any litigation, investigation or proceeding relating
to this Agreement or the transaction contemplated hereby (it being understood
and agreed that, without limiting the generality of the foregoing, a written
request by governmental authorities for information with respect to the proposed
transactions may be deemed to be a threat of litigation, investigation or
proceedings).
11.8 Manner and Effect of Termination.
(a) If this Agreement is terminated pursuant to Section 11.7
without fault of either party or breach of this Agreement, all obligations of
Sellers and Buyer hereunder shall terminate, without liability of Seller to
Buyer or of Buyer to Seller.
(b) Nothing in this Section or elsewhere in this Agreement
shall impair or restrict the rights of any Party to any and all remedies at law
or in equity in the event of a breach of or default under this Agreement.
11.9 Remedies Cumulative. All rights and remedies of the Parties under
this Agreement are cumulative and without prejudice to any other rights or
remedies under Law.
11.10 Governing Law. This Agreement shall in all respects be construed
in accordance with and governed by the substantive laws of the State of Illinois
, without reference to its choice of law rules. Each of the Parties hereto
agrees that in the event any Party files suit to enforce, in whole or in part,
the terms of this Agreement, such suit shall be brought only in a state or
federal court located in ▇▇▇▇ County, Illinois, and further, consents to the in
personam jurisdiction of any state or federal court in Illinois and waives any
objection to the venue of any such suit, action or proceeding.
11.11 Code Section 338(h)(10) Election. The Seller covenants and agrees
at Buyer's request to join with Buyer to make an election pursuant to Section
338(h)(10) of the Code (and any comparable election under state, local or
foreign law) and file such forms as necessary to effectuate such election in
accordance with this Section 11.11. Buyer and Seller shall agree to allocation
of the total consideration among the Company assets. Such allocation shall
include the apportionment and character of deemed sale gain, if any, in respect
of any state or local tax return. Such allocation shall be used by Buyer for
determining the allocation of the consideration among the Company's assets.
IN WITNESS WHEREOF, each of the Parties hereto has caused this
Agreement to be executed as of the date first above written.
BUYER
CHAMPION FINANCIAL CORPORATION
By: /s/ ▇▇▇▇▇▇▇ ▇ ▇▇▇▇▇▇
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Name:▇▇▇▇▇▇▇ ▇ ▇▇▇▇▇▇
Title:Executive Vice President
COMPANY
HEALTHSTAR INC.
By: /s/ ▇▇▇▇▇▇ ▇ ▇▇▇▇▇▇▇▇
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Name:▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title:President
SELLER
/s/ ▇▇▇▇▇▇ ▇ ▇▇▇▇▇▇▇▇
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▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
