SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): July 1, 1997
SPECIALTY CARE NETWORK, INC.
(Exact Name of Registrant Specified in Charter)
Delaware 0-22019 62-1623449
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(State or Other (Commission File (I.R.S. Employer
Jurisdiction of Number) Identification No.)
Incorporation)
44 Union Boulevard, Suite 600
Lakewood, Colorado 80228
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (303) 716-0041
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(Former Name or Former Address, if Changed Since Last Report)
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Item 2. Acquisition or Disposition of Assets.
On July 1, 1997, Specialty Care Network, Inc. (the "Company") acquired,
through merger, substantially all of the assets and certain liabilities (the
"SNG Merger") of Southeastern Neurology Group, P.C., a Virginia professional
corporation ("SNG"), pursuant to the terms of a Merger Agreement, dated June 30,
1997, among the Company, SNG, Robert B. Hansen, M.D., Vernon H. Kirk, Jr., M.D.
and Arthur R. Sonberg, M.D. (the "SNG Merger Agreement"). SNG was a 16 physician
neurology/physiatry group with its headquarters in Portsmouth, Virginia and five
additional offices in the Portsmouth, Virginia area. In connection with the SNG
Merger, the common stock of SNG was exchanged for aggregate consideration of
approximately $3,300,000 consisting of approximately $1,955,000 in cash and
120,155 shares of Company Common Stock, valued at $11.2125 per share pursuant to
the terms of the SNG Merger Agreement. In addition to the consideration paid to
the SNG shareholders, the Company also paid $69,000 in cash and issued 4,102
shares of Company Common Stock to an administrator to the practice as
consideration for services rendered to SNG by such third party in connection
with the SNG Merger. The Company used its available funds to pay the cash
portion of the consideration paid for the assets pursuant to the SNG Merger
Agreement. The assets acquired from SNG pursuant to the SNG Merger include
certain equipment used by SNG in the practice of medicine. In connection with
the SNG Merger, the Company entered into a service agreement with Southeastern
Neurology Group II, P.C., a new practice formed by the former shareholders of
SNG, pursuant to which the Company has agreed to provide management,
administrative and development services to the new practice. The Company will
make available to the new practice the equipment it acquired in the SNG Merger.
On July 1, 1997, the Company acquired, through merger, substantially
all of the assets and certain liabilities (the "OSL Merger") of Orthopaedic
Surgery, Ltd., a Virginia professional corporation ("OSL"), pursuant to the
terms of a Merger Agreement, dated June 30, 1997, among the Company, OSL, J.C.P.
Collier, Jr., M.D., Richard D. Knauft, M.D., Wayne T. Johnson, M.D., Ernesto
Luciano-Perez, M.D. and Mark B. Kerner, M.D. (the "OSL Merger Agreement"). OSL
was an orthopaedic practice located in Portsmouth, Virginia. In connection with
the OSL Merger, the common stock of OSL was exchanged for aggregate
consideration of approximately $5,945,000 consisting of approximately $2,135,000
in cash and 339,839 shares of Company Common Stock, valued at $11.2125 per share
pursuant to the terms of the OSL Merger Agreement. In addition to the
consideration paid to the OSL shareholders, the Company also paid $120,000 in
cash and issued 6,920 shares of Company Common Stock to an administrator to the
practice as consideration for services rendered to OSL by such third party in
connection with the OSL Merger. In connection with the OSL Merger, the Company
granted one physician associated with OSL the right, until June 30, 1998, to
require the Company to purchase 74,844 of the 159,643 shares of Company Common
Stock issued to such physician as consideration for the OSL Merger at a purchase
price equal to $11.2125 per share. The Company used its available funds to pay
the cash portion of the consideration paid for assets pursuant to the OSL Merger
Agreement. The assets acquired from OSL pursuant to the OSL Merger include
certain equipment used by OSL on the practice of orthopaedic medicine. In
connection with the OSL Merger, the Company entered into a service agreement
with Orthopaedic Surgery Centers, P.C. II, a new orthopaedic practice formed by
the former shareholders of OSL, pursuant to which the Company has agreed to
provide management, administrative and development services to the
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new practice. The Company will make available to the new practice the equipment
it acquired in the OSL Merger.
On July 3, 1997, the Company acquired: (i) substantially all of the
assets and certain liabilities (the "NCS&A Merger") of Neal C. Small, M.D. &
Associates, P.A., a Texas professional association ("NCS&A"), pursuant to the
terms of a Merger Agreement, dated July 3, 1997, among the Company, NCS&A, Neal
C. Small, M.D. ("Dr. Small") and Alexander I. Glogau, M.D. ("Dr. Glogau") (the
"NCS&A Merger Agreement"); (ii) substantially all of the assets and certain
liabilities (the "NCS Merger") of Neal C. Small, M.D., P.A., a Texas
professional association ("NCS"), pursuant to the terms of a Merger Agreement,
dated July 3, 1997, among the Company, NCS and Dr. Small ("NCS Merger
Agreement"); and (iii) substantially all of the assets and certain liabilities
(the "AIG Merger") of Alexander I. Glogau, M.D., P.A., a Texas professional
association ("AIG"), pursuant to the terms of a Merger Agreement, dated July 3,
1997, among the Company, AIG, and Dr. Glogau ("AIG Merger Agreement"). NCS&A was
a three physician orthopaedic and sports medicine group with its headquarters in
Plano, Texas. NCS was a one physician orthopaedic and sports medicine practice
with its headquarters in Plano, Texas. AIG was a one physician orthopaedic and
sports medicine practice with its headquarters in Plano, Texas. In the NCS&A
Merger, the aggregate consideration paid by the Company was approximately
$1,476,000 consisting of approximately $405,000 in cash and 90,780 shares of
Company Common Stock valued at $11.75 per share pursuant to the terms of the
NCS&A Merger Agreement. In the NCS Merger, the aggregate consideration paid by
the Company was approximately $1,070,000 consisting of 90,780 shares of Company
Common Stock valued at $11.75 per share pursuant to the terms of the NCS&A
Merger Agreement. In the AIG Merger, the aggregate consideration paid by the
Company was approximately $1,476,000 consisting of approximately $405,000 in
cash and 90,780 shares of Company Common Stock valued at $11.75 per share
pursuant to the terms of the AIG Merger Agreement. The Company used its
available funds to pay the cash portion of the consideration paid pursuant to
the NCS&A Merger Agreement, NCS Merger Agreement and AIG Merger Agreement. The
assets acquired from NCS&A, NCS and AIG include certain equipment used by NCS&A,
NCS and AIG, respectively, in the practice of orthopaedic and sports medicine.
In connection with the NSC&A Merger, NCS Merger and AIG Merger, the Company
entered in a service agreement with Associated Orthopaedics & Sports Medicine,
P.A., a new practice formed by Dr. Small and Dr. Glogau, pursuant to which the
Company has agreed to provide management, administrative and development
services to the new practice. The Company will make available to the new
practice the equipment acquired in the NCS&A Merger, NCS Merger and AIG Merger.
On July 3, 1997, the Company acquired substantially all of the assets
and certain liabilities (the "AAII Acquisition") of Associated Arthroscopy
Institute, Inc., a Texas corporation ("AAII"), pursuant to the terms of an Asset
Purchase Agreement, dated July 3, 1997, among the Company, AAII, Dr. Glogau and
Dr. Small (the "AAII Agreement"). AAII owned and operated an ambulatory surgery
center in Plano, Texas. Pursuant to the terms of the AAII Agreement, the Company
paid an aggregate consideration of approximately $2,290,000 in cash. The Company
used its available funds to pay for the assets. In connection with the AAII
Acquisition, the Company entered into a service agreement with AAII pursuant to
which the Company has agreed to provide management, administrative and
development services to AAII. The Company will make available to AAII the
equipment it acquired in the AAII Acquisition.
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On July 3, 1997, the Company acquired substantially all of the assets
and certain liabilities (the "APT Acquisition") of Access Medical Supply, Inc.
d/b/a Associated Physical Therapy, a Texas corporation ("APT"), pursuant to the
terms of an Asset Purchase Agreement, dated July 3, 1997, among the Company,
APT, Dr. Glogau and Dr. Small (the "APT Agreement"). APT owned and operated a
physical therapy center in Plano, Texas. Pursuant to the terms of the APT
Agreement, the Company paid an aggregate consideration of approximately
$1,510,000 in cash. The Company used its available funds to pay for the assets.
In connection with the APT Acquisition, the Company entered into a service
agreement with APT pursuant to which the Company has agreed to provide
management, administrative and development services to APT. The Company will
make available to APT the equipment it acquired in the APT Acquisition.
On July 3, 1997, the Company acquired substantially all of the assets
and certain liabilities (the "AOR Acquisition") of Allied Health Services, P.A.
d/b/a Associated Occupational Rehabilitation, a Texas professional association
("AOR"), pursuant to the terms of an Asset Purchase Agreement, dated July 3,
1997, among the Company, AOR and Dr. Small (the "AOR Agreement"). AOR owned and
operated an occupational therapy center in Plano, Texas. Pursuant to the terms
of the AOR Agreement, the Company paid an aggregate consideration of
approximately $430,000 in cash. The Company used its available funds to pay for
the assets. In connection with the AOR Acquisition, the Company entered into a
service agreement with AOR pursuant to which the Company has agreed to provide
management, administrative and development services to AOR. The Company will
make available to AOR the equipment it acquired in the AOR Acquisition.
On July 7, 1997, the Company acquired, by asset purchase, certain
assets of (the "PPTC Purchase") of Ortho-Associates, P.A. d/b/a
Park Place Therapeutic Center, a Florida professional service corporation
("PPTC"), pursuant to the terms of an Asset Purchase Agreement, dated July 7,
1997, by and among the Company, PPTC, Martin E. Hale, M.D., Alan M. Lazar, M.D.
and Martin M. May, M.D. (the "PPTC Agreement"). PPTC is an orthopaedic practice
with locations in Plantation, Florida and Tamarac, Florida. In connection with
the PPTC Purchase, certain assets (excluding existing accounts receivable) were
acquired for aggregate consideration of approximately $16,525,000, consisting of
approximately $16,000,000 in cash and the balance consisting of warrants to
purchase, in the aggregate, 544,681 shares of Company Common Stock at an
exercise price of $14.6875 per share. In addition, the Company paid a finders
fee of $500,000 in connection with the PPTC purchase. The Company used
approximately $2,300,000 of its available funds and $13,700,000 of its line of
credit to pay for the assets. The assets acquired from PPTC pursuant to the PPTC
Purchase include certain equipment used by PPTC in the practice of orthopaedic
medicine. In connection with the PPTC Purchase, the Company entered into a
Service Agreement with PPTC, pursuant to which the Company has agreed to provide
management, administrative and development services to the practice. The Company
will make available to the practice the equipment it acquired in the PPTC
Purchase.
Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits.
(b) Pro Forma Financial Information (unaudited).
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To be filed on Form 8-K/A as soon as practicable, but not
later than 60 days after this Form 8-K is filed.
(c) Exhibits.
2.1 Merger Agreement, dated June 30, 1997, by and among the Company,
SNG, Robert B. Hanson, M.D., Vernon H. Kirk, Jr., M.D. and
Arthur R. Sonberg, M.D.
2.2 Merger Agreement, dated June 30, 1997, by and among the Company,
OSL, J.C.P. Collier, Jr., M.D., Richard D. Knauft, M.D.,
Wayne T. Johnson, M.D., Ernesto Luciano-Perez, M.D. and Mark B.
Kerner, M.D.
2.3 Merger Agreement, dated July 3, 1997, by and among the Company,
NSC&A, Dr. Small and Dr. Glogau.
2.4 Merger Agreement, dated July 3, 1997, by and among the Company,
NCS and Dr. Small.
2.5 Merger Agreement, dated July 3, 1997, by and among the Company,
AIG and Dr. Glogau.
2.6 Asset Purchase Agreement, dated July 3, 1997, by and among the
Company AAII, Dr. Glogau and Dr. Small.
2.7 Asset Purchase Agreement, dated July 3, 1997, by and among the
Company, APT, Dr. Glogau and Dr. Small.
2.8 Asset Purchase Agreement, dated July 3, 1997, by and among the
Company, AOR and Dr. Small.
2.9 Asset Purchase Agreement, dated July 7, 1997 by and among, the
Company, PPTC, Martin E. Hale, M.D., Alan M. Lazar, M.D. and
Martin M. May, M.D.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
SPECIALTY CARE NETWORK, INC.
(Registrant)
By: \s\ D. Paul Davis
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D. Paul Davis
Senior Vice President of
Finance/Controller
Dated: July 16, 1997
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EXHIBIT INDEX
Exhibit
Number Description
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2.1 Merger Agreement, dated June 30, 1997, by and among the Company,
SNG, Robert B. Hanson, M.D., Vernon H. Kirk, Jr., M.D. and Arthur R.
Sonberg, M.D.*
2.2 Merger Agreement, dated June 30, 1997, by and among the Company,
OSL, J.C.P. Collier, Jr., M.D., Richard D. Knauft, M.D., Wayne T.
Johnson, M.D., Ernesto Luciano-Perez, M.D. and Mark B. Kerner, M.D.*
2.3 Merger Agreement, dated July 3, 1997, by and among the Company,
Neal C. Small, M.D. & Associates, P.A., Neal C. Small, M.D. and
Alexander I. Glogau, M.D.*
2.4 Merger Agreement, dated July 3, 1997, by and among the Company,
Neal C. Small, M.D., P.A. and Neal C. Small, M.D.*
2.5 Merger Agreement, dated July 3, 1997, by and among the Company,
Alexander I. Glogau, M.D., P.A. and Alexander I. Glogau, M.D.*
2.6 Asset Purchase Agreement, dated July 3, 1997, by and among the
Company Associated Arthroscopy Institute, Inc., Alexander I. Glogau,
M.D. and Neal C. Small, M.D.*
2.7 Asset Purchase Agreement, dated July 3, 1997, by and among the
Company, Access Medial Supply, Inc. d/b/a/ Associated Physical
Therapy, Alexander I. Glogau, M.D. and Neal C. Small, M.D.*
2.8 Asset Purchase Agreement, dated July 3, 1997, by and among the
Company, Allied Health Services, P.A. d/b/a/ Associated Occupational
Rehabilitation and Neal C. Small, M.D.*
2.9 Asset Purchase Agreement, dated July 7, 1997 by and among, the
Company, Ortho-Associates, P.A. d/b/a/ Park Place Therapeutic
Center, Martin E. Hale, M.D., Alan M. Lazar, M.D. and Martin M. May,
M.D.*
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* The exhibits and schedules to this document (which are either listed in the
table of contents or following the document) have been omitted. The Company
agrees to furnish supplementally a copy of any of the omitted exhibits to
the Securities and Exchange Commission upon request.
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MERGER AGREEMENT
BY AND AMONG
SPECIALTY CARE NETWORK, INC.,
SOUTHEASTERN NEUROLOGY GROUP, P.C.,
ROBERT B. HANSEN, M.D.,
VERNON H. KIRK, JR., M.D.,
and
ARTHUR R. SONBERG, M.D.
June 30, 1997
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MERGER AGREEMENT
----------------
THIS MERGER AGREEMENT (this "Agreement") is entered into this the 30th
day of June, 1997, by and among SPECIALTY CARE NETWORK, INC., a Delaware
corporation ("SCN"), SOUTHEASTERN NEUROLOGY GROUP, P.C., a Virginia professional
corporation ("SNG") , ROBERT B. HANSEN, M.D., VERNON H. KIRK, M.D., and ARTHUR
R. SONBERG, M.D. (collectively, the "SNG Stockholders"). SCN, SNG and the SNG
Stockholders are referred to collectively herein as the "Parties".
W I T N E S S E T H:
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WHEREAS, SCN and SNG have determined that it is desirable and in the
best interests of their respective corporations and stockholders that SNG merge
with and into SCN, with SCN as the surviving corporation, on the terms and
subject to the conditions set forth in this Agreement and the corresponding
Agreement and Plan of Merger in the form attached hereto as Exhibit 1 (the
"Agreement and Plan of Merger");
WHEREAS, SCN and SNG intend that the transaction contemplated by this
Agreement shall qualify as a tax-free reorganization under Section 368(a)(1)(A)
of the Internal Revenue Code of 1986, as amended (the "Code") and intend that
this Agreement along with the Agreement and Plan of Merger shall constitute a
"plan of reorganization" within the meaning of Section 368 of the Code;
WHEREAS, the Parties do not intend for this Agreement to be a binding
obligation of any Party unless and until the provisions of Section 6 are
satisfied or waived by the appropriate party; and
WHEREAS, the Parties desire to set forth in writing the terms and
conditions under which said transaction will be consummated.
NOW, THEREFORE, in consideration of the foregoing and of the
representations, warranties, covenants and agreements set forth herein, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged by the Parties, and in accordance with the applicable
provisions of the Delaware General Corporation Law and the Virginia Stock
Corporation Act, the parties hereby agree as follows:
1. Definitions
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Agreement" has the meaning set forth in the preface above.
"Agreement and Plan of Merger" has the meaning set forth in the first
recital above.
"Applicable Laws" has the meaning set forth in Section 3(r).
"Closing Date" has the meaning set forth in Section 2(b) below.
"Closing" has the meaning set forth in Section 2(b) below.
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"Code" has the meaning set forth in the recitals above.
"Conversion Ratio" has the meaning set forth in Section 2(d)(v) below.
"Delaware Certificate of Merger" has the meaning set forth in Section
2(a) below.
"Delaware General Corporation Law" means the General Corporation Law of
the State of Delaware, as amended.
"Disclosure Schedule" has the meaning set forth in Section 3 below.
"Effective Time" has the meaning set forth in Section 2(d)(i) below.
"Employee Benefit Plans" has the meaning set forth in Section 3(p)(i)
below.
"Environmental Laws" means all federal, state, and local laws, rules,
regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and
charges thereunder and other governmental requirements relating to pollution,
control of chemicals, storage and handling of petroleum products, management of
waste (including biohazardous or biomedical waste), discharges of materials into
the environment, health, safety, natural resources, and the environment,
including laws relating to emissions, discharges, releases, or threatened
releases of pollutants, contaminants, or chemical, industrial, hazardous, or
toxic materials or wastes into ambient air, surface water, ground water, or
lands or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling of pollutants,
contaminants, or chemical, industrial, hazardous, or toxic materials or wastes.
"ERISA" has the meaning set forth in Section 3(p)(i) below.
"Excluded Assets" has the meaning set forth in Section 5(m) below.
"GAAP" means United States generally accepted accounting principles as
in effect from time to time.
"Hazardous Materials" has the meaning set forth in Section 3(t) below.
"IRS" means the Internal Revenue Service.
"Knowledge" means actual knowledge without any independent
investigation.
"Medical Waste" includes, but is not limited to, pathological waste,
blood, sharps, wastes from surgery or autopsy, dialysis waste, including
contaminated disposable equipment and supplies, cultures and stock of infectious
agents and associated biological agents, contaminated animals, isolation wastes,
contaminated equipment, laboratory waste, various other biological waste and
discarded materials contaminated with or exposed to blood, excretion or
secretion from human beings or animals, and any substance, pollutant, material
or contaminant listed or regulated under the Medical Waste Tracking Act of 1988,
42 U.S.C. ss.ss. 6992, et seq.
"Medical Waste Law" means the Medical Waste Tracking Act of 1988, as
amended, the U.S. Public Vessel Medical Waste Anti-Dumping Act of 1988, 33
U.S.C.A. ss.ss. 2501, et seq., the Marine Protection, Research and Sanctuaries
Act of 1972, 33 U.S.C.A. ss.ss. 1401, et seq., the Occupational Safety and
Health Act, 29 U.S.C.A. ss.ss. 651, et seq., the United States Department of
Health and Human Services, National Institute for Occupational Self-Safety
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and Health Infectious Waste Disposal Guidelines, Publication No. 88-119, all
regulations and orders issued pursuant to any of the foregoing, and any other
federal, state, regional, county, municipal or other local laws, regulations and
ordinances insofar as they purport to regulate Medical Waste or impose
requirements relating to Medical Waste.
"Merger" has the meaning set forth in Section 2(a) below.
"Merger Consideration" means Two Million Four Hundred Thirty-Three
Thousand One Hundred Seventy-Three Dollars ($2,433,173).
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice.
"Parties" has the meaning set forth in the preface above.
"PBGC" has the meaning set forth in Section 3(p)(ii) below.
"PCBs" has the meaning set forth in Section 3(t) below.
"Person" means an individual, a partnership, a limited liability
company, a corporation, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization, or a governmental entity (or any
department, agency, or political subdivision thereof).
"Practice Assets" has the meaning set forth in Section 3(l) below.
"SCN Share Price" means the average of the closing asking price of one
(1) share of SCN common stock as reported on the NASDAQ National Market System
for the ten (10) trading days immediately preceding June 30, 1997.
"SCN Share" means any share of the common stock, $.001 par value per
share, of SCN.
"SCN" has the meaning set forth in the preface above.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance,
charge or other security interest other than (a) mechanic's, materialmen's, and
similar liens, (b) liens for taxes not yet due and payable or for taxes that the
taxpayer is contesting in good faith through appropriate proceedings, (c)
purchase money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.
"Service Agreement" shall mean that certain Service Agreement dated as
of June 30, 1997 by and among SCN, Southeastern Neurology Group, II, P.C.,
("SNGII") and the SNG Stockholders to be executed and delivered at the Closing.
"SNG" has the meaning set forth in the preface above.
"SNGII" has the meaning set forth within the definition of "Service
Agreement" above.
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"SNG Share" means any share of the common stock of SNG issued and
outstanding at the date of this Agreement.
"SNG Stockholders" has the meaning set forth in the preface above.
"Subsidiary" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) owns a majority of the common stock or has the
power to vote or direct the voting of sufficient securities to elect a majority
of the directors.
"Surviving Corporation" has the meaning set forth in Section 2(a)
below.
"Virginia Articles of Merger" has the meaning set forth in Section 2(a)
below.
"Virginia Stock Corporation Act" means the Stock Corporation Act of the
State of Virginia, as amended.
2. Basic Transaction
(a) The Merger. On and subject to the terms and conditions of this
Agreement, SNG will merge with and into SCN (the "Merger") at the Effective
Time. SCN shall enter into the Agreement and Plan of Merger upon adoption of the
Agreement and Plan of Merger by the Board of Directors of SCN and the
satisfaction or waiver of the conditions precedent to SCN's obligations set
forth in this Agreement. SNG shall enter into the Agreement and Plan of Merger
upon adoption of the Agreement and Plan of Merger by the Board of Directors of
SNG and the SNG Stockholders and the satisfaction or waiver of the conditions
precedent to SNG's obligation set forth in this Agreement. Upon all other
conditions herein being satisfied or waived in accordance with the terms of this
Agreement, a Certificate of Merger in substantially the form attached hereto as
Exhibit 2(a)(1) (the "Delaware Certificate of Merger") shall be executed and
filed with the Secretary of State of the State of Delaware and Articles of
Merger in substantially the form attached hereto as Exhibit 2(a)(2) (the
"Virginia Articles of Merger") shall be executed and filed with the State
Corporation Commission of the State of Virginia, together with all certificates
or documents as may be required to be filed under the laws of the State of
Delaware and the State of Virginia to effect the Merger. Thereafter, the
separate corporate existence of SNG shall cease and SNG shall be merged with and
into SCN (the "Surviving Corporation").
(b) The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Kaufman & Canoles,
Norfolk, Virginia, commencing at 9:00 A.M. local time on June 30, 1997, or such
other date or place as the Parties may mutually determine (the "Closing Date").
Time is of the essence for this Agreement.
(c) Actions at the Closing. At the Closing, (i) SNG will deliver to SCN
the various certificates, instruments, and documents referred to in Section 7(a)
below, (ii) SCN will deliver to SNG the various certificates, instruments, and
documents referred to in Section 7(b) below, (iii) SCN and SNG will file with
the Secretary of State of the State of Delaware the Delaware Certificate of
Merger, and (iv) SCN and SNG will file with the State Corporation Commission of
the State of Virginia the Virginia Articles of Merger.
(d) Effect of Merger
(i) General. The Merger shall become effective at the time
(the "Effective Time") set forth in the Delaware Certificate of Merger
which shall be filed with the Secretary of State of the State of
Delaware and the Virginia Articles of Merger which shall be filed with
the State Corporation Commission of the State of
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Virginia. The Merger shall have the effect set forth in the Delaware
General Corporation Law and the Virginia Stock Corporation Act. The
Surviving Corporation may, at any time after the Effective Time, take
any action (including executing and delivering any document) in the
name and on behalf of either SCN or SNG in order to carry out and
effectuate the transactions contemplated by this Agreement.
(ii) Certificate of Incorporation. The Certificate of
Incorporation of SCN in effect at and as of the Effective Time will
remain the Certificate of Incorporation of the Surviving Corporation
without any modification or amendment as a result of the Merger.
(iii) Bylaws. The Bylaws of SCN in effect at and as of the
Effective Time will remain the Bylaws of the Surviving Corporation
without any modification or amendment as a result of the Merger.
(iv) Directors and Officers. The directors and officers of SCN
in office at and as of the Effective Time will remain the directors and
officers of the Surviving Corporation (retaining their respective
positions and terms of office).
(v) Conversion of SNG Shares. At and as of the Effective Time,
SCN shall issue to the SNG Stockholders one-half (1/2) of the Merger
Consideration in SCN Shares and shall pay to the SNG Stockholders the
balance of the Merger Consideration in cash. At and as of the Effective
Time, each of the issued and outstanding SNG Shares shall be converted
into SCN Shares based on the Conversion Ratio. The Conversion Ratio
shall equal (a) the dollar amount of the portion of the Merger
Consideration payable in SCN Shares, divided by the SCN Share Price,
divided by (b) the number of SNG Shares issued and outstanding at the
Effective Time. In addition, at and as of the Effective Time, each
issued and outstanding SNG Share shall represent the right to receive
cash in an amount equal to the portion of the Merger Consideration
payable in cash divided by the number of SNG Shares issued and
outstanding at the Effective Time. The Conversion Ratio shall be
subject to equitable adjustment in the event of any stock split, stock
dividend, reverse stock split, or other change in the number of SNG
Shares or SCN Shares outstanding.
(vi) SCN Shares. Each SCN Share issued and outstanding at and
as of the Effective Time will remain issued and outstanding and shall
be unaffected by the Merger.
(e) No Fractional Shares. No fractional SCN Shares shall be issued
pursuant to the Merger. In lieu of the issuance of any such fractional SCN
Shares, cash adjustments will be paid to holders in respect of any fractional
SCN Shares that would otherwise be issuable. The amount of such adjustment shall
be the product of such fraction of a SCN Share multiplied by the SCN Share
Price.
3. Representations and Warranties of SNG and SNG Stockholders. SNG and
the SNG Stockholders, separately (both as to each SNG Stockholder and SNG and
with respect to each SNG Stockholder only as to any breach of the representation
and warranties caused by such SNG Stockholder or by SNG) and not jointly and
severally, represent and warrant to SCN that the statements contained in this
Section 3 are correct and complete as of the date of this Agreement and will be
correct and complete as of the Closing Date (as though made then and as though
the Closing Date were substituted for the date of this Agreement throughout this
Section 3), except as set forth in the disclosure schedule (the "Disclosure
Schedule"). The Disclosure Schedule will be arranged in paragraphs corresponding
to the lettered and numbered paragraphs contained in this Section 3. Information
included in the Disclosure Schedules, regardless of the section of the
Disclosure Schedule under which it appears, shall be deemed sufficient
disclosure so long as such information constitutes fair notice. The Disclosure
Schedule will be delivered upon execution of this Agreement;
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provided, however, that SNG and the SNG Stockholders shall have the right to
update the Disclosure Schedule and deliver such updated Disclosure Schedule to
SCN on the Closing Date.
(a) Organization, Qualification, and Corporate Power. SNG is a
professional corporation duly organized, validly existing, and in good standing
under the laws of the State of Virginia. SNG is duly authorized to conduct
business and is in good standing under the laws of each jurisdiction in which
the character or location of the properties owned or the business conducted by
SNG makes such qualification necessary. SNG has the full corporate power and
authority to carry on the business in which it is engaged and to own and use the
properties owned and used by it.
(b) SNG Stockholder Interests and Capitalization. The capital stock of
SNG is owned in the manner set forth in Section 3(b) of the Disclosure Schedule.
All of the issued and outstanding SNG Shares have been duly authorized and are
validly issued, fully paid, and nonassessable. There are no outstanding or
authorized options, warrants, purchase rights, subscription rights, conversion
rights, exchange rights or other contracts or commitments that could require SNG
to issue, sell or otherwise cause to become outstanding any of its capital
stock. There are no outstanding or authorized stock appreciation, phantom stock,
profit participation, or similar rights with respect to SNG. As of the date of
this Agreement, the authorized capital stock of SNG consists of 5,000 shares of
SNG common stock, of which 150 shares are issued and outstanding.
(c) Authorization of Transaction. SNG has the full corporate power and
authority to execute and deliver this Agreement and to perform its obligations
hereunder. This Agreement constitutes the valid and legally binding obligation
of SNG and the SNG Stockholders, enforceable in accordance with its terms and
conditions.
(d) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge or other restriction of any government,
governmental agency, professional regulatory organization or court to which SNG
is subject or any provision of the charter or bylaws of SNG or (ii) conflict
with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, modify,
or cancel, or require any notice under any agreement, contract, lease, license,
instrument or other arrangement to which SNG is a party or by which it is bound
or to which any of its assets is subject (or result in the imposition of any
Security Interest upon any of its assets). SNG is not required to give any
notice to, make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order for the Parties to
consummate the transactions contemplated by this Agreement.
(e) Subsidiaries and Investments. Except as listed on Section 3(e) of
the Disclosure Schedule, SNG does not own, directly or indirectly, any capital
stock or other equity ownership or proprietary interest in any other
corporation, partnership, association, limited liability company, trust, joint
venture or other entity.
(f) Financial Statements. SNG has furnished SCN with unaudited balance
sheets dated December 31, 1995 and 1996 and April 30, 1997 and unaudited income
statements for the twelve (12) month periods ending December 31, 1996, 1995 and
1994 and the four (4) months ended April 30, 1997. Such financial statements,
including the notes thereto, except as indicated therein, were prepared on a
basis consistent with past accounting practices of SNG and fairly present the
results of operations for the periods noted therein. The balance sheets of SNG
delivered by SNG to SCN fairly present the financial condition of SNG at the
date thereof, and except as indicated therein, reflect all claims against and
all debts and liabilities of SNG, fixed or contingent, as of the date thereof.
(g) Undisclosed Liabilities. SNG has no material, uninsured liability
(whether known or unknown, asserted or unasserted, absolute or contingent,
accrued or unaccrued, liquidated or unliquidated, and whether due or to become
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due), including any liability for taxes, except for (i) liabilities set forth on
the face of the balance sheet dated as of December 31, 1996 and (ii) liabilities
which have arisen after December 31, 1996 in the Ordinary Course of Business
(none of which results from, arises out of, relates to, is in the nature of, or
was caused in any material respect by any breach of contract, breach of
warranty, tort, infringement, or violation of law).
(h) Brokers' Fees. SNG does not have any liability or obligation to pay
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement.
(i) Material Contracts. Section 3(i) of the Disclosure Schedule lists
the following contracts and other material agreements to which SNG is a party:
(i) any agreement (or group of related agreements) for the
lease of real or personal property to or from any Person;
(ii) any agreement (or group of related agreements) for the
purchase or sale of supplies, products, or other personal property or
for the furnishing or receipt of services;
(iii) any agreement concerning a partnership, limited
liability company or joint venture;
(iv) any agreement (or group of related agreements) under
which SNG has created, incurred, assumed, or guaranteed any
indebtedness for borrowed money, or any capitalized lease obligation
pursuant to which it has imposed a Security Interest in respect of any
of its assets, tangible or intangible;
(v) any agreement concerning confidentiality or
noncompetition;
(vi) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other plan or
arrangement for the benefit of SNG's current or former directors,
officers, and employees;
(vii) any agreement for the employment of any individual on a
full-time, part-time, consulting, or other basis providing annual
compensation in excess of $25,000 or providing severance benefits;
(viii) any agreement pursuant to which SNG has advanced or
loaned any amount to any of its directors, officers, and employees;
(ix) any agreement pursuant to which the consequences of a
default or termination could have a material adverse effect on the
business, financial condition, operations, results of operations, or
future prospects of SNG; or
(x) any other agreement (or group of related agreements)
outside the ordinary course of SNG's business or operations the
performance of which involves consideration in excess of $15,000.
SNG has delivered or given SCN access to a correct and complete copy of each
written agreement listed in Section 3(i) of the Disclosure Schedule (as amended
through the Closing Date) and a written summary setting forth the terms and
conditions of each oral agreement referred to in Section 3(i) of the Disclosure
Schedule. With respect to each such agreement: (A) the agreement is legal,
valid, binding, enforceable, and in full force and effect; (B) except as set
forth in Section 3(i) of the Disclosure Schedule, no notice of this Agreement or
consent of any third party is required in order
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for SNG to execute and deliver this Agreement or to consummate the transactions
contemplated hereby, and, after assignment to SCN at Closing, the agreement will
continue to be legal, valid, binding, enforceable, and in full force and effect
on identical terms; (C) no party is in breach or default, and no event has
occurred which with notice or lapse of time would constitute a breach or
default, or permit termination, modification, or acceleration, under the
agreement; and (D) no party has repudiated any provision of the agreement.
(j) Insurance; Malpractice. Section 3(j) of the Disclosure Schedule
contains a list and brief description of all policies or binders of fire,
liability, product liability, workers compensation, health and other forms of
insurance policies or binders currently in force insuring against risks which
will remain in full force and effect at least through the Closing Date. Section
3(j) of the Disclosure Schedule contains a description of all current
malpractice liability insurance policies of SNG Stockholders, SNG and SNG's
professional employees and all predecessor policies in effect since February 1,
1990. Neither SNG, the SNG Stockholders, nor SNG's professional employees have,
in the last seven (7) years, filed a written application for any insurance
coverage relating to SNG's business or property which has been denied by an
insurance agency or carrier. SNG, SNG's professional employees and the SNG
Stockholders have been continuously insured for professional malpractice claims
during the same period. Section 3(j) of the Disclosure Schedule also sets forth
a list of all claims for any insured loss in excess of Five Thousand Dollars
($5,000.00) per occurrence filed by or against SNG, SNG's professional employees
or the SNG Stockholders during the three (3) year period immediately preceding
the date hereof, including workers compensation, general liability,
environmental liability and professional malpractice liability claims. None of
SNG, SNG's professional employees or the SNG Stockholders is in material default
with respect to any provision contained in any such policy and none of them has
failed to give any notice or present any claim under any such policy in due and
timely fashion.
(k) No Changes Prior to Closing Date. During the period from December
31, 1996 through the date hereof, SNG has not (i) incurred any liability or
obligation of any nature (whether known or unknown, asserted or unasserted,
absolute or contingent, accrued or unaccrued, liquidated or unliquidated and
whether due or to become due), except in the Ordinary Course of Business, (ii)
written off as uncollectible any notes or accounts receivable, except write-offs
in the Ordinary Course of Business charged to applicable reserves, none of which
individually or in the aggregate is material to SNG, (iii) conducted its
business in such a manner so as to materially increase its accounts payable or
so as to materially decrease its accounts receivable, (iv) granted any increase
in the rate of wages, salaries, bonuses, or other remunerations of any employee,
except in the Ordinary Course of Business, (v) canceled or waived any claims or
rights of substantial value, (vi) made any change in any method of accounting,
(vii) otherwise conducted its business or entered into any transaction, except
in the usual and ordinary manner and in the Ordinary Course of Business, (viii)
agreed, whether or not in writing, to do any of the foregoing, or (ix) disposed
of its assets other than in the Ordinary Course of Business.
(l) Title; Condition. Section 3(l) of the Disclosure Schedule contains
a complete, true and correct list of those assets which are material to the
business or operations of SNG (the "Practice Assets"). SNG has good and
marketable title to all of the Practice Assets subject to no mortgage, pledge,
lien, lease, conditional sales agreement, option, right of first refusal or any
other encumbrance or charge, including taxes. SNG agrees to remove all security
interests reflected on any search of public records, if any, prior to the
Effective Time and remove any other security interest filed with respect to the
Practice Assets between the date of such search of public records and the
Effective Time.
(m) Litigation. There is no suit, action, proceeding at law or in
equity, arbitration, administrative proceeding or other proceeding or
investigation by any governmental entity pending, or threatened against, or
affecting SNG or any of the Practice Assets, or any physician or other health
care professional engaged or employed by SNG, and there is no basis for any of
the foregoing. None of the actions, suits, proceedings, hearings, and
investigations set forth in Section
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3(m) of the Disclosure Schedule could result in any material adverse change in
the operations, results of operations, or future prospects of the business
assets to be operated by SCN after the Closing.
(n) Permits and Licenses. SNG and all physicians and other health care
professionals engaged or employed by SNG have all material permits and licenses
required by all applicable laws; have made all material regulatory filings
necessary for the conduct of SNG's business; and are not in material violation
of any of said permitting or licensing requirements.
(o) Tax Matters. All federal, state and other tax returns of SNG
required by law to be filed have been timely filed, and SNG has paid or
adequately provided for all taxes (including taxes on properties, income,
franchises, licenses, sales and payrolls) which have become due pursuant to such
returns or pursuant to any assessment, except for any taxes and assessments, the
amount, applicability or validity of which is currently being contested in good
faith by appropriate proceedings and with respect to which SNG has set aside on
its books adequate reserves. There are no tax liens on any of SNG's assets
except those with respect to taxes not yet due and payable. There are no pending
tax examinations of SNG's tax returns nor has SNG received a revenue agent's
report asserting a tax deficiency in the last twelve (12) months. There are not
and will not be at the Closing Date, any claims pending or asserted against SNG
for unpaid taxes by any federal, state or other governmental body. SNG has
withheld from each payment made to employees of SNG the amount of all taxes
(including, but not limited to, federal, state and local income taxes and
Federal Insurance Contribution Act taxes) required to be withheld therefrom and
all amounts customarily withheld therefrom, and has set aside all other employee
contributions or payments customarily set aside with respect to such wages and
has paid or will pay the same to, or has deposited or will deposit such payment
with, the proper tax receiving officers or other appropriate authorities.
(p) Employee Benefit Plans.
(i) List of Plans. Section 3(p) of the Disclosure Schedule
contains an accurate and complete list of all employee benefit plans
("Employee Benefit Plans") within the meaning of Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
whether or not any Employee Benefit Plans are otherwise exempt from the
provisions of ERISA, established, maintained or contributed to by SNG
(including all employers (whether or not incorporated) which by reason
of common control are treated together with SNG and/or the SNG
Stockholders as a single employer within the meaning of Section 414 of
the Code) since September 2, 1974.
(ii) Status of Plans. SNG has never maintained and does not
now maintain or contribute to any Employee Benefit Plan subject to
ERISA which is not in substantial compliance with ERISA, or which has
incurred any accumulated funding deficiency within the meaning of
Section 412 or 418B of the Code, or which has applied for or obtained a
waiver from the Internal Revenue Service of any minimum funding
requirement under Section 412 of the Code or which is subject to Title
IV of ERISA. SNG has not incurred any liability to the Pension Benefit
Guaranty Corporation ("PBGC") in connection with any Employee Benefit
Plan covering any employees of SNG or ceased operations at any facility
or withdrawn from any such Plan in a manner which could subject it to
liability under Section 4062(f), 4063 or 4064 of ERISA, and knows of no
facts or circumstances which might give rise to any liability of SNG to
the PBGC under Title IV of ERISA which could reasonably be anticipated
to result in any claims being made against SNG by the PBGC. SNG has not
incurred any withdrawal liability (including any contingent or
secondary withdrawal liability) within the meaning of Sections 4201 and
4202 of ERISA, to any Employee Benefit Plan which is a Multi employer
Plan (as defined in Section 4001 of ERISA), and no event has occurred,
and there exists no condition or
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set of circumstances, which represent a material risk of the occurrence
of any withdrawal from or the partition, termination, reorganization or
insolvency of any Multiemployer Plan which would result in any
liability of SNG.
(iii) Contributions. Full payment has been made of all amounts
which SNG is required, under applicable law or under any Employee
Benefit Plan or any agreement relating to any Employee Benefit Plan to
which SNG is a party, to have paid as contributions thereto as of the
last day of the most recent plan year of such Employee Benefit Plan
ended prior to the date hereof. SNG has made adequate provision for
reserves to meet contributions that have not been made because they are
not yet due under the terms of any Employee Benefit Plan or related
agreements. Benefits under all Employee Benefit Plans are as
represented and have not been increased subsequent to the date as of
which documents have been provided.
(iv) Tax Qualification. Each Employee Benefit Plan intended to
be qualified under Section 401(a) of the Code has been determined to be
so qualified by the Internal Revenue Service and nothing has occurred
since the date of the last such determination which resulted or is
likely to result in the revocation of such determination.
(v) Transactions. SNG has not engaged in any transaction with
respect to the Employee Benefit Plans which would subject it to a
material tax, penalty or liability for prohibited transactions under
ERISA or the Code nor have any of its directors, officers or employees
to the extent they or any of them are fiduciaries with respect to such
plans, breached any of their responsibilities or obligations imposed
upon fiduciaries under Title I of ERISA which would result in any
material claim being made under or by or on behalf of any such plans by
any party with standing to make such claim.
(vi) Other Plans. SNG presently does not maintain any Employee
Benefit Plans or any other foreign pension, welfare or retirement
benefit plans other than those listed on Section 3(p) of the Disclosure
Schedule.
(vii) Documents. SNG has delivered or caused to be delivered
to SCN true and complete copies of (i) all Employee Benefit Plans as in
effect, together with all amendments thereto which will become
effective at a later date, as well as the latest IRS determination
letter obtained with respect to any such Employee Benefit Plan
qualified under Section 401 or 501 of the Code, and (ii) the most
recently filed Form 5500 for each Employee Benefit Plan required to
file such form.
(q) Third-Party Relations. SNG has not received any written notice that
any material patient, supplier, employee or associated physician intends to
cease doing business with SNG.
(r) Compliance with Applicable Laws. SNG has operated in compliance in
all material respects with all federal, state, county and municipal laws,
constitutions, ordinances, statutes, rules, regulations and orders applicable
thereto ("Applicable Laws"). No item disclosed in Section 3(r) of the Disclosure
Schedule could have a material effect on SCN. Neither SNG nor any physician
associated with or employed by SNG has received payment or any remuneration
whatsoever to induce or encourage the referral of patients or the purchase of
goods and/or services as prohibited under 42 U.S.C. ss. 1320a-7b(b), or
otherwise perpetrated any Medicare or Medicaid fraud or abuse nor has any fraud
or abuse been alleged within the last five (5) years by any government agency.
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(s) Employee Compensation. SNG has paid or discharged or will pay or
discharge or assume all liabilities for compensation and benefits to which all
employees, including physician employees, are entitled through the Closing Date,
including but not limited to all salaries, wages, bonuses, incentive
compensation, payroll taxes, hospitalization and medical expenses, deferred
compensation, and vacation and sick pay, as well as any severance pay becoming
due as a result of the termination of SNG's employees; provided, however, that
SCN hereby agrees to assume and SNG is not required to pay or discharge prior to
closing, liability for one (1) week of accrued sick leave and one (1) week of
accrued vacation leave for each employee of SNG who becomes an employee of SCN
pursuant to the Merger.
(t) Environmental Matters.
(i) SNG is in full compliance in all material respects with
all applicable Environmental Laws.
(ii) SNG has not authorized or conducted the disposal or
release, or other handling of any hazardous substance, Medical Waste,
hazardous waste, hazardous material, hazardous constituent, toxic
substance, pollutant, contaminant, asbestos, radon, polychlorinated
biphenyls ("PCBs"), petroleum product or waste (including crude oil or
any fraction thereof), natural gas, liquefied gas, synthetic gas,
biohazardous or biomedical material, or other material defined,
regulated controlled or potentially subject to any remediation
requirement under any Environmental Law (collectively "Hazardous
Materials"), on, in, under or affecting any property owned or leased by
SNG.
(iii) SNG has, and is in compliance, in all material respects,
with, all licenses, permits, registrations, and government
authorizations necessary to operate under all applicable Environmental
Laws. Section 3(t) of the Disclosure Schedule lists all such licenses,
permits, registrations and government authorizations required by any
Environmental Law.
(iv) SNG has not received any written or oral notice from any
governmental agency or entity or any other Person and there is no known
pending or threatened claim, litigation or any administrative agency
proceeding that: (a) alleges a violation of any Environmental Law(s) by
SNG or, with respect to the Practice Assets or any property owned or
leased by SNG (b) alleges that SNG is a liable party or potentially
responsible party under the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. ss. 9601, et seq., or any
analogous state law, (c) has resulted or could result in the attachment
of an environmental lien on any of the Practice Assets or property
owned or leased by SNG, or (d) alleges that SNG is liable for any
contamination of the environment, contamination of any property owned
or leased by SNG, damage to natural resources, property damage, or
personal injury based on its activities or the activities of any
predecessor or third parties involving Hazardous Materials, whether
arising under the Environmental Laws, common law principles, or other
legal standards.
(v) With respect to the generation, transportation, treatment,
storage and disposal or other handling of Medical Waste, SNG has
complied in all material respects with all Medical Waste Laws.
(u) Healthcare Compliance. SNG is participating in or
otherwise authorized to receive reimbursement from Medicare and
Medicaid and is a party to other third-party payor agreements if any,
discussed in Section 3(i) of the Disclosure Schedule. All necessary
certifications and contracts required for participation in such
programs are in full force and effect and have not been amended or
otherwise modified, rescinded, revoked or assigned, and no condition
exists or event has occurred which in itself or with the giving of
notice or the lapse of time or both would result in the suspension,
revocation, impairment, forfeiture or non-renewal of any such
third-party payor program. SNG is in compliance in all material
respects with the requirements of all such third-party payors. SNG, the
SNG Stockholders,
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and SNG's physician employees do not have any financial relationship (whether
investment interest, compensation interest, or otherwise) with any entity to
which any of the foregoing refer patients, except for such financial
relationships that qualify for exceptions to state and federal laws restricting
physician referrals to entities in which they have a financial interest.
(v) Fraud and Abuse. SNG, the SNG Stockholders and persons and entities
providing professional services for SNG have not engaged in any activities which
are prohibited under 42 U.S.C. ss. 1320a-7b, or the regulations promulgated
thereunder pursuant to such statutes, or related state or local statutes or
regulations, or which are prohibited by rules of professional conduct, including
the following: (a) knowingly and willfully making or causing to be made a false
statement or representation of a material fact in any application for any
benefit or payment; (b) knowingly and willfully making or causing to be made any
false statement or representation of a material fact for use in determining
rights to any benefit or payment; (c) failing to disclose knowledge by a
claimant of the occurrence of any event affecting the initial or continued right
to any benefit or payment on its own behalf or on behalf of another, with intent
to fraudulently secure such benefit or payment; or (d) knowingly and willfully
soliciting or receiving any remuneration (including any kickback, bribe, or
rebate), directly or indirectly, overtly or covertly, in cash or in kind or
offering to pay or receive such remuneration (1) in return for referring an
individual to a person for the furnishing or arranging for the furnishing or any
item or service for which payment may be made in whole or in part by Medicare or
Medicaid, or (2) in return for purchasing, leasing, or ordering or arranging for
or recommending purchasing, leasing, or ordering any good, facility, service or
item for which payment may be made in whole or in part by Medicare or Medicaid.
(w) Practice Compliance. SNG is duly licensed as a medical practice and
is lawfully operated in accordance with all material requirements of all
Applicable Laws and has all necessary authorizations for the use and operation
of a medical practice, all of which are in full force and effect. There are no
outstanding notices of deficiencies relating to SNG issued by any governmental
authority or third-party payor requiring conformity or compliance with any
applicable law or condition for participation with such governmental authority
or third-party payor, and after reasonable and independent inquiry and due
diligence and investigation, SNG has neither received notice nor has any
Knowledge or reason to believe that such necessary authorizations may be revoked
or not renewed in the Ordinary Course of Business.
(x) Rates and Reimbursement Policies. The jurisdiction in which SNG is
located does not currently impose any restrictions or limitations on rates which
may be charged to private pay patients receiving services provided by SNG. SNG
does not have any rate appeal currently pending before any governmental
authority or any administrator of any third-party payor program. No Applicable
Law which affects rates or reimbursement procedures has been enacted,
promulgated or issued within the eighteen (18) months preceding the date of this
Agreement and no such legal requirement is proposed or currently pending in the
jurisdiction in which SNG is located, which could have a material adverse effect
on SNG or may result in the imposition of additional Medicaid, Medicare,
charity, free care, welfare, or other discounted or government assisted patients
at SNG or require SNG to obtain any necessary authorization which SNG does not
currently possess.
(y) Accounts Receivable. All accounts receivable, unbilled invoices and
other debts due or recorded in the respective records and books of account of
SNG, as being due to SNG, (i) are valid, existing and are collectible within one
hundred eighty (180) days following the date of this Agreement without resort to
legal proceedings or use of collection agencies, (ii) have arisen in the
Ordinary Course of Business, and (iii) none of such accounts receivable or other
debts is or will at the Closing Date be subject to any counterclaim or set-off
except to the extent of any such provision or reserve. There has been no
material adverse change since April 30, 1997, in the amount of accounts
receivable or other debts due SNG, the allowances with respect thereto, or
accounts payable of SNG from that reflected in the most recent balance sheet
previously delivered by SNG to SCN.
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(z) Guaranties. Except as listed in Section 3(z) of the Disclosure
Schedule, SNG is not a guarantor and otherwise is not liable for any liability
or obligation (including indebtedness) of any other Person.
(aa) Powers of Attorney. There are no outstanding powers of attorney
executed by SNG, except as may be contained in financing documents or security
agreements listed in Section 3(i) of the Disclosure Schedule.
(bb) Tangible Assets. SNG owns or leases all land, buildings,
machinery, equipment, and other tangible assets necessary for the conduct of its
business as presently conducted. Each tangible asset is free from defects, has
been maintained in accordance with normal industry practice, and is in good
operating condition and repair (subject to normal wear and tear).
(cc) SCN Share Ownership; Investment Intent.
(i) Neither SNG nor the SNG Stockholders owns, beneficially or
otherwise, any SCN Shares.
(ii) SCN Shares issuable in the Merger are being acquired by
the SNG Stockholders solely for their own account for investment and
not with a view to the distribution thereof, and the SNG Stockholders
acknowledge and understand that the certificate(s) representing such
SCN Shares will bear a legend in substantially the following form:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR UNDER ANY STATE SECURITIES ACT AND CANNOT BE SOLD,
TRANSFERRED, OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER
SUCH ACTS OR UNLESS EXEMPTIONS FROM REGISTRATION ARE
AVAILABLE.
(iii) The SNG Stockholders represent and warrant as follows:
(A) The SNG Stockholders confirm that SCN has made
available to them or to their representatives the opportunity
to ask questions of SCN officers and directors and to acquire
such information about the SCN Shares and the business and
financial condition of SCN as the SNG Stockholders requested,
which additional information has been received.
(B) In deciding to acquire SCN Shares pursuant to
this Agreement, the SNG Stockholders consulted with their
legal, financial, and tax advisors with respect to the Merger
and the nature of the investment together with any additional
information provided under subsection (B) above.
(C) Each SNG Stockholder has adequate means of
providing for his current needs and personal contingencies and
has no need for liquidity in his investment in SCN. Each SNG
Stockholder, either alone or with his representatives, has
such knowledge and experience in financial and business
matters that they are capable of evaluating the merits and
risks of the Merger.
(D) The SNG Stockholders understand and acknowledge
that the investment in the SCN Shares is a speculative
investment which involves a high degree risk of loss of such
SNG Stockholders' investment therein; that there are
substantial restrictions on the transferability of the
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SCN Shares under the applicable provisions of the Securities
Act and the rules and regulations promulgated thereunder and
applicable state securities or "blue sky" laws; and,
accordingly, that it may not be possible to liquidate an
investment in the SCN Shares.
(E) The SNG Stockholders have been advised and
understand that (i) the offer and sale of the SCN Shares have
not been registered under the Securities Act; (ii) the SCN
Shares must held indefinitely and the SNG Stockholders must
continue to bear the economic risk of the investment in the
SCN Shares until the offer or sale of the SCN Shares is
subsequently registered under the Securities Act or any "blue
sky" laws or an exemption from such registration is available;
(iii) Rule 144 promulgated under the Securities Act is not
presently available with respect to the sale of any securities
of SCN, including the SCN Shares, and when and if the SCN
Shares may be disposed of without registration in reliance on
Rule 144, such disposition can be made only in accordance with
the terms and conditions of such Rule; (iv) the restrictive
legends described in Section 3(cc)(ii) shall be placed on the
certificates representing the SCN Shares; and (v) a notation
shall be made in the appropriate records of SCN indicating
that the SCN Shares are subject to restrictions on transfer
and appropriate stop-transfer instructions will be issued to
any transfer agent with respect to the SCN Shares.
(dd) Full Disclosure. No representation or warranty made by SNG in this
Agreement contains or will contain any untrue statement of a material fact or
omits or will omit to state a material fact necessary to make the statements
contained herein or therein not misleading.
4. Representations and Warranties of SCN. SCN represents and warrants
to SNG that the statements contained in this Section 4 are correct and complete
as of the date of this Agreement and will be correct and complete as of the
Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Section 4).
(a) Organization and Qualification. SCN is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Delaware. SCN has the requisite corporate power and authority to carry on its
business as it is now being conducted and to own the properties and assets it
now owns and to consummate the transactions contemplated hereby. SCN is duly
qualified to do business as a foreign corporation in good standing in every
jurisdiction where the failure to be so qualified would have a material adverse
effect on the business of SCN.
(b) Capitalization. As of the date of this Agreement, the entire
authorized capital stock of SCN consists of fifty million (50,000,000) SCN
Shares, of which Fourteen Million Six Hundred Sixty-Two Thousand Five Hundred
Seventy-Five (14,662,575) SCN Shares are issued and outstanding and two million
(2,000,000) shares of preferred stock, none of which are issued and outstanding.
All of the issued and outstanding shares of capital stock of SCN are duly
authorized, validly issued, fully paid and nonassessable. All of the SCN Shares
to be issued in the Merger have been duly authorized and, upon consummation of
the Merger, will be validly issued, fully paid, and nonassessable.
(c) Authorization of Transaction. SCN has full power and authority
(including full corporate power and authority) to execute and deliver this
Agreement and all documents ancillary hereto, to issue the SCN Shares and
otherwise to perform its obligations hereunder; provided, however, that SCN
cannot consummate the transaction unless and until the Merger receives the
approval of the SCN Board of Directors. Except as set forth in the preceding
sentence, this Agreement constitutes the valid and legally binding obligation of
SCN, enforceable in accordance with its terms and conditions subject to
applicable bankruptcy, insolvency, reorganization, moratorium, and other similar
laws affecting creditors' rights generally and the availability of equitable
remedies generally.
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(d) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge or other restriction of any government,
governmental agency, professional regulatory organization or court to which SCN
is subject or may become subject as a result of the transaction contemplated by
this Agreement, or any provision of the certificate of incorporation or bylaws
of SCN or (ii) conflict with, result in a breach of, constitute a default under,
result in the acceleration of, create in any party the right to accelerate,
terminate, modify, or cancel, or require any notice under any agreement,
contract, lease, license, instrument or other arrangement to which SCN is a
party or by which it is bound or to which any of its assets is subject. Other
than state and federal filings required by the Securities Act and similar state
statutes, SCN does not need to give any notice to, make any filing with, or
obtain any authorization, consent, or approval of any government or governmental
agency in order for the Parties to consummate the transactions contemplated by
this Agreement.
(e) Brokers' Fees. SCN does not have any liability or obligation to pay
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which SCN could become liable or
obligated.
(f) Compliance with Applicable Laws. SCN has operated in compliance in
all material respects with all Applicable Laws. No item disclosed in Section
4(f) of the Disclosure Schedule could have a material effect on SCN.
(g) Financial Statements. SCN has furnished SNG and the SNG
Stockholders with audited consolidated balance sheets dated December 31, 1995
and 1996, an audited consolidated statements of operations for the twelve (12)
month periods ending December 31, 1996, an unaudited consolidated balance sheet
dated March 31, 1997 and an unaudited consolidated statement of operations for
the three (3) month period ended March 31, 1997. Such income statements of
operations, including the notes thereto, except as indicated therein, were
prepared in conformance with generally accepted accounting principles, on a
basis consistent with past accounting practices of SCN and fairly present the
results of operations for the periods noted therein. The balance sheets of SCN
delivered by SCN to SNG fairly present the financial condition of SCN at the
date thereof, and except as indicated therein, reflect all claims against and
all debts and liabilities of SNG, fixed or contingent, as of the date thereof.
(h) Undisclosed Liabilities. SCN has no uninsured liability (whether
known or unknown, asserted or unasserted, absolute or contingent, accrued or
unaccrued, liquidated or unliquidated, and whether due or to become due),
including any liability for taxes, except for (i) liabilities set forth on the
face of the balance sheet dated as of March 31, 1997 and (ii) liabilities which
have arisen after March 31, 1997 in the Ordinary Course of Business.
(i) Absence of Certain Changes or Events. Since the date of the latest
financial statements of SCN delivered to SNG, there has not been (a) any
material adverse change in the business, results of operations, assets,
financial condition or prospects or the manner of conducting the business of SCN
other than changes in the ordinary course of business, none of which
individually or in the aggregate have had or may have a material adverse effect
on the business, results of operation, assets, financial condition or prospects
of SCN; (b) any damage, destruction or loss, whether covered by insurance or
not, which has had or will have a material adverse effect on the business,
results of operations, assets, financial condition or prospects of SCN; or (c)
any other material transaction entered into by SCN other than in the ordinary
course of business.
(j) Litigation. Except as set forth in Section 4(j) of the Disclosure
Schedule, there is no material suit, action, proceeding at law or in equity,
arbitration, administrative proceeding or other proceeding or investigation by
any
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governmental entity pending, or threatened against, or affecting SCN and to the
best of SCN's Knowledge, there is no basis for any of the foregoing. None of the
actions, suits, proceedings, hearings, and investigations set forth in Section
4(j) of the Disclosure Schedule could result in any material adverse change in
the operations, results of operations, or future prospects of SCN.
(k) Tax Matters. All federal, state and other tax returns of SCN
required by law to be filed have been timely filed, and SCN has paid or
adequately provided for all taxes (including taxes on properties, income,
franchises, licenses, sales and payrolls) which have become due pursuant to such
returns or pursuant to any assessment, except for any taxes and assessments, the
amount, applicability or validity of which is currently being contested in good
faith by appropriate proceedings and with respect to which SCN has set aside on
its books adequate reserves. There are no tax liens on any of SCN's assets
except those with respect to taxes not yet due and payable. There are no pending
tax examinations of SCN's tax returns nor has SCN received a revenue agent's
report asserting a tax deficiency in the last twelve (12) months.
(l) Insurance. Section 4(l) of the Disclosure Schedule contains a list
and brief description of all policies or binders of fire, liability, product
liability, workers compensation, health and other forms of insurance policies or
binders currently in force insuring against risks. To the best of SCN Knowledge,
such policies or binders provide adequate insurance of the properties and
conduct of SCN's business.
(m) Public Filings. SCN has made all filings with the Securities and
Exchange Commission that it has been required to make under the Securities Act
and the Exchange Act (collectively, the "Public Reports"). Each of the Public
Reports has complied with the Securities Act and the Exchange Act in all
material respects. None of the Public Reports, as of their respective dates,
contained any untrue statement of a material fact or omitted to state a material
fact necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading.
(n) Hart-Scott-Rodino. SCN is of sufficiently small size as to cause
the consummation of the transactions contemplated hereby not to be subject to,
or to be exempt from, the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended.
(o) Full Disclosure. No representation or warranty made by SCN in this
Agreement or in connection with this transaction or in any document furnished
pursuant to this Agreement contains or will contain any untrue statement of a
material fact or omits or will omit to state a material fact necessary to make
the statements contained herein or therein not misleading.
5. Covenants. The Parties agree as follows with respect to the period
from and after the execution of this Agreement.
(a) General. Each of the Parties will use its or his best efforts to
take all action and to do all things necessary in order to consummate and make
effective the transactions contemplated by this Agreement (including
satisfaction of the closing conditions set forth in Section 6 below) to be
satisfied by him or it. This paragraph shall not be construed to obligate any of
the Parties to waive any condition precedent to his or its obligations to
perform hereunder.
(b) Notices and Consents. SNG will give any notices to third parties,
and will use its best efforts to obtain any third party consents necessary or
required to consummate the Merger or that SCN reasonably may request in
connection with the matters referred to in Section 3(i) above.
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<PAGE>
(c) Regulatory Matters and Approvals. Each of the Parties will give any
notices to, make any filings with, and use its reasonable best efforts to obtain
any necessary authorizations, consents, and approvals of governments and
governmental agencies in connection with the transactions contemplated by this
Agreement. Without limiting the generality of the foregoing:
(i) Tax Reporting. The Merger is intended to qualify as a
reorganization under Code Section 368(a)(1)(A). Each of the parties
agrees to report this transaction for all purposes in accordance with
the foregoing.
(ii) Licenses and Permits. Each of the Parties shall have
obtained all licenses and permits necessary to operate their respective
businesses.
(d) Operation of Business. From the date of this Agreement through the
Closing Date, SNG will not engage in any practice, take any action, or enter
into any transaction outside the Ordinary Course of Business. Without limiting
the generality of the foregoing:
(i) SNG will not authorize or effect any change in its
charter documents or bylaws;
(ii) SNG will not grant any options, warrants, or other rights
to purchase or obtain any of its capital stock or issue, sell or
otherwise dispose of any of its capital stock (except upon the
conversion or exercise of options, warrants, and other rights currently
outstanding);
(iii) SNG will not declare, set aside, or pay any dividend or
distribution with respect to its capital stock (whether in cash or in
kind), or redeem, repurchase, or otherwise acquire any of its capital
stock in either case outside the Ordinary Course of Business without
the consent of SCN, which consent shall not be unreasonably withheld;
(iv) SNG will not issue any note, bond or other debt security
or create, incur, assume or guarantee any indebtedness for borrowed
money or capitalized lease obligation outside the Ordinary Course of
Business;
(v) SNG will not impose any Security Interest upon any of its
assets outside the Ordinary Course of Business;
(vi) SNG will not make any capital investment in, make any
loan to, or acquire the securities or assets of any other Person
outside the Ordinary Course of Business;
(vii) SNG will not make any change in employment terms for any
of its directors, officers or employees outside the Ordinary Course of
Business; and
(viii) SNG will not commit to do any of the foregoing.
(e) Further Acts and Assurances. SNG and the SNG Stockholders shall, at
any time and from time to time at and after the Effective Time, upon request of
SCN, take any and all steps necessary to place SCN in possession and operating
control of the Practice Assets and to effectuate the Merger, and will do,
execute, acknowledge and deliver, or will cause to be done, executed,
acknowledged and delivered, all such further acts, deeds, assignments,
transfers, conveyances, powers of attorney, and assurances as may be required
for better transferring and confirming to SCN or
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its successors and assigns, or for better reducing to possession, any or all of
the Practice Assets or consummating the Merger.
(f) Full Access. Upon three (3) days prior notice, SNG will permit
representatives of SCN to have full access to all premises, properties,
personnel, books, records (including tax records), contracts, and documents of
or pertaining to SNG during normal business hours. SCN will treat and hold as
such any confidential information it receives from SNG in the course of the
reviews contemplated by this Section 5(f), will not use any of the confidential
information except in connection with this Agreement, and, if this Agreement is
terminated for any reason whatsoever, agrees to return to SNG all tangible
embodiments (and all copies) thereof which are in its possession.
(g) Notice of Developments. Each Party will give prompt written notice
to the other Parties of any material adverse development causing a breach of any
of its own representations and warranties in Section 3 or Section 4 above, as
applicable. No disclosure by any Party pursuant to this Section 5(g), however,
shall be deemed to amend or supplement the Disclosure Schedule or to prevent or
cure any misrepresentation, breach of warranty, or breach of covenant.
(h) Exclusivity. Until the earlier of (i) July 31, 1997, or (ii) the
Effective Time, SNG will not solicit, initiate, or encourage the submission of
any proposal or offer from any Person relating to the acquisition of all or
substantially all of the capital stock or assets of SNG (including any
acquisition structured as a merger, consolidation, or share exchange). SNG shall
notify SCN immediately if any Person makes any proposal, offer, inquiry, or
contact with respect to any of the foregoing.
(i) Collection of Accounts Receivable. The SNG Stockholders agree to
cooperate with SCN in the collection of accounts receivable owned by SNG as of
the Effective Time acquired pursuant to this Agreement. SCN, at its option,
shall have the right to require the collection of said accounts receivable
through a lockbox or bank account sweep arrangement. In connection therewith,
the SNG Stockholders agree to execute the necessary documents and follow the
necessary procedures as described in the Service Agreement to accommodate the
collection of the accounts receivable in such manner.
(j) Payment of Expenses. On or before the Effective Time, SNG shall
have paid or discharged any and all liabilities or charges for costs or fees
owed as a result of the transaction contemplated by this Agreement.
(k) Corporate Authorization. By execution of this Agreement, the SNG
Stockholders agree to take any and all steps necessary and will do, execute,
acknowledge and deliver, or will cause to be done, executed, acknowledged and
delivered, all such acts, deeds and assurances required in order to consummate
the Merger, including voting as directors of SNG in favor of the Merger and
voting as stockholders of SNG in favor of the Merger at any meetings (or in any
action by written consent) required by the Virginia Stock Corporation Act.
(l) Malpractice Insurance. On or before the Effective Time, all
physicians and employees of SNG must be covered by medical malpractice insurance
and, if required by SCN, medical malpractice tail insurance to cover prior
occurrences shall be procured by SNG.
(m) Distribution of Excluded Assets. Prior to the Effective Time, SNG
shall have distributed to the SNG Stockholders all of the assets listed on
Schedule 5(m), which constitute the entirety of the assets owned by SNG not
being acquired by SCN (the "Excluded Assets").
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(n) Satisfaction of Indebtedness. Prior to the Effective Time, SNG
shall have caused the payoff of all liabilities owed to third-parties (with the
exception of thirty (30) days worth of trade payables, one (1) week of accrued
vacation pay per employee, and one (1) week of accrued sick leave per employee,
which shall be assumed by SCN) and all indebtedness owed to banks or other
financial institutions or lenders or shall have caused the assumption thereof by
a new entity organized by the SNG Stockholders. Notwithstanding any contrary
provision contained herein, SCN shall not be deemed to have assumed, nor shall
SCN assume: (i) any liability which may be incurred by reason of any breach of
or default under such contracts, leases, commitments or obligations which
occurred prior to the Closing Date; (ii) any liability for any employee benefits
payable to employees of SNG, including, but not limited to, liabilities arising
under any Employee Benefit Plan; (iii) any liability based upon or arising out
of a violation of any laws by SNG, including, without limiting the generality of
the foregoing, any such liability which may arise in connection with agreements,
contracts, commitments or provision of services by SNG; nor (iv) any liability
based upon or arising out of any tortious or wrongful actions of SNG or any
Physician Owner, or any liability for the payment of any taxes imposed by law on
SNG arising from or by reason of the transactions contemplated by this
Agreement. In addition, the SNG Stockholders shall cause to be filed on behalf
of SNG all final tax returns required by Applicable Law to be filed and shall
pay all Taxes owed by SNG for the tax period ended as of the Effective Time.
(o) Conversion into Business Corporation. If required by the Virginia
Stock Corporation Act, prior to the Effective Time, the SNG Stockholders shall
have caused the conversion of SNG to a Virginia business corporation.
(p) Employee Benefit Plans. Prior to the Effective Time, all Employee
Benefit Plans, other than Employee Benefit Plans which are both "pension plans"
under Section 3 of ERISA and tax qualified under Section 401(a) of the Code
("Pension Plan"), shall be terminated in accordance with Applicable Law. Prior
to the Effective Time, SNG will take all necessary actions to ensure that on and
after the Effective Time no further benefit will accrue under the Pension Plan
within the contemplation of Section 410(b) of the Code. As soon as practicable
after the Effective Time, SCN shall merge the Pension Plan of SNG into the
corresponding plan(s) of SCN; provided, however, that such merger of Pension
Plans shall not occur until: (i) SCN, acting reasonably, has satisfied itself
that SNG's Pension Plans meet all applicable qualification requirements of the
Internal Revenue Code; (ii) SCN, acting reasonably, has tendered to SNG such
amendments to SNG's Pension Plans as SCN deems necessary or appropriate to
conform such plans to the pension plans of SCN and (iii) all amendments to the
Pension Plans requested by SCN have been made and (iv) SCN, acting reasonably,
is satisfied that SNG has taken all actions necessary to insure operational
compliance with the operative documents and Applicable Law.
(q) Securities Laws Compliance. No SNG Stockholder shall dispose of the
SCN Shares received as a result of the Merger except in accordance with the
provisions of the Securities Act, the provisions of any rule adopted by the
Securities and Exchange Commission pursuant to the Securities Act and the "blue
sky" laws of any applicable state.
6. Conditions to Obligation to Close
(a) Conditions to Obligation of SCN. The obligation of SCN to
consummate the Merger is subject to satisfaction of the following conditions or
before the Closing Date:
(i) SNG shall have procured all of the third party consents
specified in Section 5(b) above;
(ii) the representations and warranties set forth in Section 3
above shall be true and correct in all material respects at and as of
the Closing Date;
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(iii) SNG shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(iv) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency
of any federal, state, local, or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction, judgment, order, decree,
ruling, or charge would (A) prevent consummation of any of the
transactions contemplated by this Agreement, (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation, or (C) affect adversely the right of the Surviving
Corporation to own the former assets or to operate the former business
of SNG;
(v) SCN shall have received the resignations, effective as of
the Closing, of each director and officer of SNG other than those whom
SCN shall have specified in writing at least five (5) business days
prior to the Closing;
(vi) all actions to be taken by SNG and/or the SNG
Stockholders in connection with consummation of the transactions
contemplated hereby and all certificates, opinions, instruments, and
other documents required to effect the transactions contemplated hereby
have been taken or delivered to SCN and are satisfactory in form and
substance to SCN;
(vii) the issuance of the SCN Shares to the SNG Stockholders
will not violate federal securities laws or the securities laws of any
state of the United States;
(viii) SCN shall have completed and be satisfied with its due
diligence review, including SCN's review of the Disclosure Schedule;
and
(ix) SCN's Board of Directors shall have approved the Merger
in their sole and absolute discretion.
SCN may waive any condition specified in this Section 6(a) if it executes a
writing so stating at or prior to the Closing.
(b) Conditions to Obligation of SNG. The obligation of SNG to
consummate the Merger is subject to satisfaction of the following conditions:
(i) This Agreement and the Merger shall have received the SNG
director and SNG Stockholders' approval required by the Virginia Stock
Corporation Act.
(ii) the representations and warranties set forth in Section 4
above shall be true and correct in all material respects at and as of
the Closing Date;
(iii) SCN shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing; and
(iv) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency
of any federal, state, local or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction, judgment, order, decree,
ruling or charge would (A) prevent consummation of any of the
transactions contemplated by this Agreement, (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation, or (C) affect adversely the right of the Surviving
Corporation to own the former assets of SNG.
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SNG may waive any condition specified in this Section 6(b) if it
executes a writing so stating at or prior to the Closing.
7. Items to be Delivered at or Prior to Closing
(a) By the SNG Stockholders or SNG. The SNG Stockholders or SNG, as
applicable, shall execute and deliver to SCN, prior to or at the Closing:
(i) Certified resolutions of the directors and stockholders of
SNG authorizing the execution of all documents and the consummation of
all transactions contemplated hereby;
(ii) The Virginia Articles of Merger which shall be in the
form required by SCN's legal counsel;
(iii) Stock Certificates representing ownership of all shares
of SNG, duly endorsed to SCN;
(iv) A Service Agreement in the form attached hereto as
Exhibit 7(a)(iv);
(v) A certificate duly executed by the President of SNG
stating as of the Closing Date, all representations and warranties are
true, all covenants and agreements contained in the Agreement to be
performed by SNG and the SNG Stockholders have been performed or
complied with and all conditions to closing have been complied with;
(vi) An opinion from SNG's counsel in substantially the form
attached hereto as Exhibit 7(a)(vi); and
(vii) Such other instruments as may be reasonably requested by
SCN in order to effect to or carry out the intent of this Agreement.
(b) By SCN. SCN shall deliver to SNG at or prior to the Closing:
(i) Stock Certificates representing the SCN Shares being
issued to the SNG Stockholders pursuant to Section 2(d)(v);
(ii) The Delaware Certificate of Merger in substantially the
form attached hereto as Exhibit 2(a)(1);
(iii) An opinion from SCN's counsel in substantially the form
attached hereto as Exhibit 7(b)(iii);
(iv) A certificate, duly executed by an officer of SCN,
stating as of the Closing Date, all representations and warranties of
SCN are true, all covenants and agreements contained in the Agreement
to be performed by SCN have been performed or complied with and all
conditions to Closing have been satisfied;
(v) A Service Agreement in the form attached hereto as Exhibit
7(a)(iv); and
(vi) Such other instruments as may be reasonably requested by
SNG or the SNG Stockholders in order to effect to or carry out the
intent of this Agreement.
8. Termination.
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(a) Termination of Agreement. Either of the Parties may terminate this
Agreement with the prior authorization of its board of directors (whether before
or after stockholder approval) as provided below:
(i) the Parties may terminate this Agreement by mutual written
consent at any time prior to the Effective Time;
(ii) SCN may terminate this Agreement by giving written notice
to SNG at any time prior to the Effective Time (A) in the event SNG has
breached any representation, warranty, or covenant contained in this
Agreement in any material respect, SCN has notified SNG of the breach,
and the breach has continued without cure for a period of 30 days after
the notice of breach, (B) if the Closing shall not have occurred on or
before July 31, 1997 by reason of the failure of any condition
precedent under Section 6(a) hereof (unless the failure results
primarily from SCN breaching any representation, warranty, or covenant
contained in this Agreement) or (C) in accordance with Section
6(a)(viii) or (ix); or
(iii) SNG may terminate this Agreement by giving written
notice to SCN at any time prior to the Effective Time (A) in the event
SCN has breached any representation, warranty, or covenant contained in
this Agreement in any material respect, SNG has notified SCN of the
breach, and the breach has continued without cure for a period of 30
days after the notice of breach or (B) if the Closing shall not have
occurred on or before July 31, 1997 by reason of the failure of any
condition precedent under Section 6(b) hereof (unless the failure
results primarily from SNG breaching any representation, warranty, or
covenant contained in this Agreement).
(b) Effect of Termination. If any Party terminates this Agreement
pursuant to Section 8(a) above, all rights and obligations of the Parties
hereunder shall terminate without any liability of any party to any other Party
(except for any liability of any Party then in breach).
9. Indemnification
(a) Indemnification by the SNG Stockholders. The SNG Stockholders,
separately and not jointly and severally, agree to and shall defend, indemnify
and hold harmless SCN, its successors and assigns, officers and directors
against any and all losses, liabilities, expenses (including, but without
limitation, reasonable attorneys fees) and damages resulting from or arising out
of the breach, untruth or inaccuracy of any representation, warranty or covenant
of SNG or the SNG Stockholders set forth in this Agreement or from any loss,
liability or expense resulting from or related to SNG's operation of its
business prior to the Effective Time. The SNG Stockholders shall not be liable
to SCN for any claims against the SNG Stockholders under this Section 9(a)
unless and until the aggregate of all claims against the SNG Stockholders
exceeds the sum of $25,000.00, whereupon SCN shall be entitled to recover the
full amount of all claims, including the initial $25,000.00. Notwithstanding the
foregoing provisions, the obligations of any SNG Stockholder hereunder to
indemnify SCN shall not exceed the value (at the time of Closing) of the portion
of the SCN shares and cash delivered to such SNG Stockholder at the Closing. In
addition to the foregoing $25,000 "threshold", in the event SCN has received
service fees (as defined in the Service Agreement) pursuant to the Service
Agreement in excess of the Base Service Fee (as defined in the Service
Agreement) then (i) SCN shall charge the first $100,000 of claims to SNGII as a
Clinic Expense (as defined in the Service Agreement) and the Physician Owners
shall cause SNGII to pay such claim as a Clinic Expense pursuant to the terms of
the Service Agreement and (ii) any amounts in excess of $100,000 shall be paid
to SCN directly by the Physician Owners.
(b) Notice to the SNG Stockholders; Opportunity to Defend. SCN agrees
to give prompt notice to the SNG Stockholders of the assertion of any claim, or
the commencement of any suit, action or proceeding, in respect of which
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indemnity may be sought under Section 9(a). The SNG Stockholders may participate
in and at their election, or at the request of SCN, assumes the defense of any
such suit, action or proceeding at the SNG Stockholders' expense. The SNG
Stockholders shall not be liable under Section 9(a) for any settlement effected
without their consent of any claim, litigation or proceeding in respect of which
indemnity may be sought under Section 9(a) which consent shall not be
unreasonably withheld.
(c) General Indemnification by SCN. SCN agrees to and shall defend,
indemnify and hold harmless the SNG Stockholders, their heirs and assigns
against any and all losses, liabilities, expenses (including, but without
limitation, reasonable attorneys fees) and damages resulting from the breach,
untruth or inaccuracy of any representation, warranty or covenant of SCN set
forth in this Agreement. SCN shall not be liable to the SNG Stockholders for any
claims against SCN under this Section 9(c) unless and until the aggregate of all
claims against SCN exceeds the sum of $25,000.00, whereupon the SNG Stockholders
shall be entitled to recover the full amount of all claims, including the
initial $25,000.00.
(d) Notice to SCN; Opportunity to Defend. The SNG Stockholders agree to
give prompt notice to SCN of the assertion of any claim, or the commencement of
any suit, action or proceeding in respect of which indemnity may be sought under
Section 9(c). SCN may participate in and at its election, or at the request of
the SNG Stockholders, assume the defense of any such suit, action or proceeding
at SCN's expense. SCN shall not be liable under Section 9(c) for any settlement
effected without its consent of any claim, litigation or proceeding in respect
of which indemnity may be sought hereunder, which consent shall not be
unreasonably withheld.
(e) Right of Setoff. In the event of any breach of warranty,
representation, covenant or agreement by any party hereto, the Claiming Party
(as defined in the Service Agreement) may set-off against any Additional Payment
(as defined in the Service Agreement) to the other party pursuant to the
provisions of Section 10.4.3 of the Service Agreement.
10. Miscellaneous
(a) Survival. The representations and warranties of the SNG
Stockholders, SNG and SCN contained in this Agreement and the indemnifications
contained herein shall survive the Closing for a period of two (2) years.
Notwithstanding the foregoing, any claim to indemnification that a party may
have arising from the breach of representations and warranties or covenants
relating to tax matters shall survive for three (3) years following the Closing
Date. Any matter to which indemnification pertains and with respect to which a
claim has been asserted or threatened following the Closing Date shall continue
to be subject to the indemnification under this Agreement until finally
terminated, settled, resolved or adjudicated; and all terms, conditions and
stipulations of this Agreement shall likewise continue to apply.
(b) No Third-Party Beneficiaries. Except as provided in Section 9(e),
this Agreement shall not confer any rights or remedies upon any Person other
than the parties and their respective successors and permitted assigns.
(c) Entire Agreement. This Agreement (including the documents referred
to herein) constitutes the entire agreement between the parties and supersedes
any prior understandings, agreements, or representations by or between the
parties, written or oral, to the extent they related in any way to the subject
matter hereof.
(d) Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties named herein and their respective successors
and permitted assigns. No party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other Party.
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(e) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(f) Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(g) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to SNG: Copy to:
Southeastern Neurology Group II, P.C. T. Braxton McKee, Esq.
3737 High Street Kaufman & Canoles
Portsmouth, VA 23707 One Commercial Place
Attention: President P.O. Box 3037
Facsimile: (757) 399-8247 Norfolk, VA 23514
Facsimile: (757) 624-3169
If to SCN: Copy to:
Kerry R. Hicks, President David T. Popwell, Esq.
Specialty Care Network, Inc. Baker, Donelson, Bearman & Caldwell
44 Union Boulevard, Suite 600 165 Madison Ave, Suite 2100
Lakewood, Colorado 80228 Memphis, Tennessee 38103
Facsimile: (303) 716-1298 Facsimile: (901) 577-2303
Any party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other party
notice in the manner herein set forth.
(h) Governing Law; Venue. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of Delaware without
giving effect to any choice or conflict of law provision or rule (whether of the
State of Delaware or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of Delaware. Each of the
parties submits to the jurisdiction of any state or federal court sitting in
Norfolk, Virginia, in any action or proceeding arising out of or relating to
this Agreement and agrees that all claims in respect of the action or proceeding
may be heard and determined in any such court. Each party also agrees not to
bring any action or proceeding arising out of or relating to this Agreement in
any other court. Each of the parties waives any defense of inconvenient forum to
the maintenance of any action or proceeding so brought and waives any bond,
surety, or other security that might be required of any other party with respect
thereto.
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(i) Amendments and Waivers. The parties may mutually amend any
provision of this Agreement at any time prior to the Effective Time with the
prior authorization of their respective boards of directors; provided, however,
that any amendment effected subsequent to SNG stockholder approval will be
subject to the restrictions contained in the Virginia Stock Corporation Act. No
amendment of any provision of this Agreement shall be valid unless the same
shall be in writing and signed by both of the parties. No waiver by any party of
any default, misrepresentation, or breach of warranty or covenant hereunder,
whether intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
(j) Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(k) Expenses. Each of the Parties will bear its own costs and expenses
(including legal fees and expenses) incurred in connection with this Agreement
and the transactions contemplated hereby.
(l) Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context otherwise requires. The
word "including" shall mean including without limitation.
(m) No Referrals Required. The Parties agree that no part of this
Agreement shall be construed to induce or encourage the referral of patients or
the purchase of health care services or supplies. The Parties acknowledge that
there is no requirement under this Agreement or any other agreement between SNG
II and SCN that any party refer any patients to any health care provider or
purchase any health care goods or services from any source. Additionally, no
payment under this Agreement is in return for the referral of patients, if any,
or in return for purchasing, leasing or ordering services from SCN or any of
SCN's affiliates. The Parties may refer patients to any company or person
providing services and will make such referrals, if any, consistent with
professional medical judgment and the needs and wishes of the relevant patients.
(n) Incorporation of Exhibits and Schedules. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
* * * * *
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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the
date first above written.
SPECIALTY CARE NETWORK, INC.
By:
Title:
SOUTHEASTERN NEUROLOGY GROUP, P.C.
By:
Title:
ROBERT B. HANSEN, Stockholder
VERNON H. KIRK, JR., Stockholder
ARTHUR R. SONBERG, Stockholder
26
<PAGE>
EXHIBIT LIST
EXHIBIT 1 - Agreement and Plan of Merger of Southeastern Neurology
Group, P.C. with and into Specialty Care Network, Inc.
EXHIBIT 2(a)(1) - Certificate of Merger of Southeastern Neurology Group,
P.C. into Specialty Care Network, Inc.
EXHIBIT 2(a)(2) - Form of Virginia Articles of Merger
EXHIBIT 2(d)(v) - Consideration Allocation
EXHIBIT 5(m) - Excluded Assets
EXHIBIT 7(b)(iv) - Service Agreement
EXHIBIT 7(a)(vi) - SCG Opinion Letter
EXHIBIT 7(b)(iii) - SCN Opinion Letter
MERGER AGREEMENT
BY AND AMONG
SPECIALTY CARE NETWORK, INC.,
ORTHOPAEDIC SURGERY, LTD.,
J.C.P. COLLIER, JR., M.D.,
RICHARD D. KNAUFT, M.D.
WAYNE T. JOHNSON, M.D.,
ERNESTO LUCIANO-PEREZ, M.D.
and
MARK B. KERNER, M.D.
June 30, 1997
<PAGE>
MERGER AGREEMENT
----------------
THIS MERGER AGREEMENT (this "Agreement") is entered into this the 30th
day of June, 1997, by and among SPECIALTY CARE NETWORK, INC., a Delaware
corporation ("SCN"), ORTHOPAEDIC SURGERY, LTD., a Virginia professional
corporation ("OSL") , J.C.P. COLLIER, JR., M.D., RICHARD D. KNAUFT, M.D., VERNON
H. KIRK, M.D., and ERNESTO LUCIANO-PEREZ, M.D. (collectively, the "OSL
Stockholders"). SCN, OSL and the OSL Stockholders are referred to collectively
herein as the "Parties".
W I T N E S S E T H:
--------------------
WHEREAS, SCN and OSL have determined that it is desirable and in the
best interests of their respective corporations and stockholders that OSL merge
with and into SCN, with SCN as the surviving corporation, on the terms and
subject to the conditions set forth in this Agreement and the corresponding
Agreement and Plan of Merger in the form attached hereto as Exhibit 1 (the
"Agreement and Plan of Merger");
WHEREAS, SCN and OSL intend that the transaction contemplated by this
Agreement shall qualify as a tax-free reorganization under Section 368(a)(1)(A)
of the Internal Revenue Code of 1986, as amended (the "Code") and intend that
this Agreement along with the Agreement and Plan of Merger shall constitute a
"plan of reorganization" within the meaning of Section 368 of the Code;
WHEREAS, the Parties do not intend for this Agreement to be a binding
obligation of any Party unless and until the provisions of Section 6 are
satisfied or waived by the appropriate party; and
WHEREAS, the Parties desire to set forth in writing the terms and
conditions under which said transaction will be consummated.
NOW, THEREFORE, in consideration of the foregoing and of the
representations, warranties, covenants and agreements set forth herein, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged by the Parties, and in accordance with the applicable
provisions of the Delaware General Corporation Law and the Virginia Stock
Corporation Act, the parties hereby agree as follows:
1. Definitions
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Agreement" has the meaning set forth in the preface above.
"Agreement and Plan of Merger" has the meaning set forth in the first
recital above.
"Applicable Laws" has the meaning set forth in Section 3(r).
"Closing Date" has the meaning set forth in Section 2(b) below.
"Closing" has the meaning set forth in Section 2(b) below.
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<PAGE>
"Code" has the meaning set forth in the recitals above.
"Conversion Ratio" has the meaning set forth in Section 2(d)(v) below.
"Delaware Certificate of Merger" has the meaning set forth in Section
2(a) below.
"Delaware General Corporation Law" means the General Corporation Law of
the State of Delaware, as amended.
"Disclosure Schedule" has the meaning set forth in Section 3 below.
"Effective Time" has the meaning set forth in Section 2(d)(i) below.
"Employee Benefit Plans" has the meaning set forth in Section 3(p)(i)
below.
"Environmental Laws" means all federal, state, and local laws, rules,
regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and
charges thereunder and other governmental requirements relating to pollution,
control of chemicals, storage and handling of petroleum products, management of
waste (including biohazardous or biomedical waste), discharges of materials into
the environment, health, safety, natural resources, and the environment,
including laws relating to emissions, discharges, releases, or threatened
releases of pollutants, contaminants, or chemical, industrial, hazardous, or
toxic materials or wastes into ambient air, surface water, ground water, or
lands or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling of pollutants,
contaminants, or chemical, industrial, hazardous, or toxic materials or wastes.
"ERISA" has the meaning set forth in Section 3(p)(i) below.
"Excluded Assets" has the meaning set forth in Section 5(m) below.
"GAAP" means United States generally accepted accounting principles as
in effect from time to time.
"Hazardous Materials" has the meaning set forth in Section 3(t) below.
"IRS" means the Internal Revenue Service.
"Knowledge" means actual knowledge without any independent
investigation.
"Medical Waste" includes, but is not limited to, pathological waste,
blood, sharps, wastes from surgery or autopsy, dialysis waste, including
contaminated disposable equipment and supplies, cultures and stock of infectious
agents and associated biological agents, contaminated animals, isolation wastes,
contaminated equipment, laboratory waste, various other biological waste and
discarded materials contaminated with or exposed to blood, excretion or
secretion from human beings or animals, and any substance, pollutant, material
or contaminant listed or regulated under the Medical Waste Tracking Act of 1988,
42 U.S.C. ss.ss. 6992, et seq.
"Medical Waste Law" means the Medical Waste Tracking Act of 1988, as
amended, the U.S. Public Vessel Medical Waste Anti-Dumping Act of 1988, 33
U.S.C.A. ss.ss. 2501, et seq., the Marine Protection, Research and Sanctuaries
Act of 1972, 33 U.S.C.A. ss.ss. 1401, et seq., the Occupational Safety and
Health Act, 29 U.S.C.A. ss.ss. 651, et seq., the United States Department of
Health and Human Services, National Institute for Occupational Self-Safety
2
<PAGE>
and Health Infectious Waste Disposal Guidelines, Publication No. 88-119, all
regulations and orders issued pursuant to any of the foregoing, and any other
federal, state, regional, county, municipal or other local laws, regulations and
ordinances insofar as they purport to regulate Medical Waste or impose
requirements relating to Medical Waste.
"Merger" has the meaning set forth in Section 2(a) below.
"OSL" has the meaning set forth in the preface above.
"OSL Share" means any share of the common stock of OSL issued and
outstanding at the date of this Agreement.
"OSL Stockholders" has the meaning set forth in the preface above.
"OSCII" has the meaning set forth within the definition of "Service
Agreement" below.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice.
"Parties" has the meaning set forth in the preface above.
"PBGC" has the meaning set forth in Section 3(p)(ii) below.
"PCBs" has the meaning set forth in Section 3(t) below.
"Person" means an individual, a partnership, a limited liability
company, a corporation, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization, or a governmental entity (or any
department, agency, or political subdivision thereof).
"Practice Assets" has the meaning set forth in Section 3(l) below.
"SCN Share Price" means the average of the closing asking price of one
(1) share of SCN common stock as reported on the NASDAQ National Market System
for the ten (10) trading days immediately preceding June 30, 1997.
"SCN Share" means any share of the common stock, $.001 par value per
share, of SCN.
"SCN" has the meaning set forth in the preface above.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance,
charge or other security interest other than (a) mechanic's, materialmen's, and
similar liens, (b) liens for taxes not yet due and payable or for taxes that the
taxpayer is contesting in good faith through appropriate proceedings, (c)
purchase money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.
3
<PAGE>
"Service Agreement" shall mean that certain Service Agreement dated as
of June 30, 1997 by and among SCN, Orthopaedic Surgery Centers, P.C. II,
("OSCII") and the OSL Stockholders to be executed and delivered at the Closing.
"Subsidiary" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) owns a majority of the common stock or has the
power to vote or direct the voting of sufficient securities to elect a majority
of the directors.
"Surviving Corporation" has the meaning set forth in Section 2(a)
below.
"Virginia Articles of Merger" has the meaning set forth in Section 2(a)
below.
"Virginia Stock Corporation Act" means the Stock Corporation Act of the
State of Virginia, as amended.
2. Basic Transaction
(a) The Merger. On and subject to the terms and conditions of this
Agreement, OSL will merge with and into SCN (the "Merger") at the Effective
Time. SCN shall enter into the Agreement and Plan of Merger upon adoption of the
Agreement and Plan of Merger by the Board of Directors of SCN and the
satisfaction or waiver of the conditions precedent to SCN's obligations set
forth in this Agreement. OSL shall enter into the Agreement and Plan of Merger
upon adoption of the Agreement and Plan of Merger by the Board of Directors of
OSL and the OSL Stockholders and the satisfaction or waiver of the conditions
precedent to OSL's obligation set forth in this Agreement. Upon all other
conditions herein being satisfied or waived in accordance with the terms of this
Agreement, a Certificate of Merger in substantially the form attached hereto as
Exhibit 2(a)(1) (the "Delaware Certificate of Merger") shall be executed and
filed with the Secretary of State of the State of Delaware and Articles of
Merger in substantially the form attached hereto as Exhibit 2(a)(2) (the
"Virginia Articles of Merger")shall be executed and filed with the State
Corporation Commission of the State of Virginia, together with all certificates
or documents as may be required to be filed under the laws of the State of
Delaware and the State of Virginia to effect the Merger. Thereafter, the
separate corporate existence of OSL shall cease and OSL shall be merged with and
into SCN (the "Surviving Corporation").
(b) The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Kaufman & Canoles,
Norfolk, Virginia, commencing at 9:00 A.M. local time on June 30, 1997, or such
other date or place as the Parties may mutually determine (the "Closing Date").
Time is of the essence for this Agreement.
(c) Actions at the Closing. At the Closing, (i) OSL will deliver to SCN
the various certificates, instruments, and documents referred to in Section 7(a)
below, (ii) SCN will deliver to OSL the various certificates, instruments, and
documents referred to in Section 7(b) below, (iii) SCN and OSL will file with
the Secretary of State of the State of Delaware the Delaware Certificate of
Merger, and (iv) SCN and OSL will file with the State Corporation Commission of
the State of Virginia the Virginia Articles of Merger.
(d) Effect of Merger.
(i) General. The Merger shall become effective at the time
(the "Effective Time") set forth in the Delaware Certificate of Merger
which shall be filed with the Secretary of State of the State of
Delaware and the Virginia Articles of Merger which shall be filed with
the State Corporation Commission of the State of Virginia . The Merger
shall have the effect set forth in the Delaware General Corporation Law
and the Virginia Stock Corporation Act. The Surviving Corporation may,
at any time after the Effective Time, take any action
4
<PAGE>
(including executing and delivering any document) in the name and on
behalf of either SCN or OSL in order to carry out and effectuate the
transactions contemplated by this Agreement.
(ii) Certificate of Incorporation. The Certificate of
Incorporation of SCN in effect at and as of the Effective Time will
remain the Certificate of Incorporation of the Surviving Corporation
without any modification or amendment as a result of the Merger.
(iii) Bylaws. The Bylaws of SCN in effect at and as of the
Effective Time will remain the Bylaws of the Surviving Corporation
without any modification or amendment as a result of the Merger.
(iv) Directors and Officers. The directors and officers of SCN
in office at and as of the Effective Time will remain the directors and
officers of the Surviving Corporation (retaining their respective
positions and terms of office).
(v) Conversion of OSL Shares. At and as of the Effective Time,
each share of stock of SNG shall be converted into the right to receive
an aggregate payment of $8,065.70. At the option of each SNG
Stockholder, such consideration may be paid up to fifty-three percent
(53%) in cash with the remainder to be paid by delivery of that certain
number of SCN shares equal to the dollar amount of the portion of the
Merger Consideration payable in SCN shares divided by the SCN Share
Price (the "Conversion Ratio"). The ratio between SCN Shares and cash
to be received by each SNG Stockholder is set forth on Schedule
2(d)(v). The Conversion Ratio shall be subject to equitable adjustment
in the event of any stock split, stock dividend, reverse stock split,
or other change in the number of OSL Shares or SCN Shares outstanding.
(vi) SCN Shares. Each SCN Share issued and outstanding at and
as of the Effective Time will remain issued and outstanding and shall
be unaffected by the Merger.
(e) No Fractional Shares. No fractional SCN Shares shall be issued
pursuant to the Merger. In lieu of the issuance of any such fractional SCN
Shares, cash adjustments will be paid to holders in respect of any fractional
SCN Shares that would otherwise be issuable. The amount of such adjustment shall
be the product of such fraction of a SCN Share multiplied by the SCN Share
Price.
3. Representations and Warranties of OSL and OSL Stockholders. OSL and
the OSL Stockholders, separately (both as to each OSL Stockholder and OSL and
with respect to each OSL Stockholder only as to any breach of the representation
and warranties caused by such OSL Stockholder or by OSL) and not jointly and
severally, represent and warrant to SCN that the statements contained in this
Section 3 are correct and complete as of the date of this Agreement and will be
correct and complete as of the Closing Date (as though made then and as though
the Closing Date were substituted for the date of this Agreement throughout this
Section 3), except as set forth in the disclosure schedule (the "Disclosure
Schedule"). The Disclosure Schedule will be arranged in paragraphs corresponding
to the lettered and numbered paragraphs contained in this Section 3. Information
included in the Disclosure Schedules, regardless of the section of the
Disclosure Schedule under which it appears, shall be deemed sufficient
disclosure so long as such information constitutes fair notice. The Disclosure
Schedule will be delivered upon execution of this Agreement; provided, however,
that OSL and the OSL Stockholders shall have the right to update the Disclosure
Schedule and deliver such updated Disclosure Schedule to SCN on the Closing
Date.
(a) Organization, Qualification, and Corporate Power. OSL is a
professional corporation duly organized, validly existing, and in good standing
under the laws of the State of Virginia . OSL is duly authorized to conduct
business and is in good standing under the laws of each jurisdiction in which
the character or location of the properties
5
<PAGE>
owned or the business conducted by OSL makes such qualification necessary. OSL
has the full corporate power and authority to carry on the business in which it
is engaged and to own and use the properties owned and used by it.
(b) OSL Stockholder Interests and Capitalization. The capital stock of
OSL is owned in the manner set forth in Section 3(b) of the Disclosure Schedule.
All of the issued and outstanding OSL Shares have been duly authorized and are
validly issued, fully paid, and nonassessable. There are no outstanding or
authorized options, warrants, purchase rights, subscription rights, conversion
rights, exchange rights or other contracts or commitments that could require OSL
to issue, sell or otherwise cause to become outstanding any of its capital
stock. There are no outstanding or authorized stock appreciation, phantom stock,
profit participation, or similar rights with respect to OSL. As of the date of
this Agreement, the authorized capital stock of OSL consists of 15,000 shares of
OSL common stock, of which 736.7647 shares are issued and outstanding.
(c) Authorization of Transaction. OSL has the full corporate power and
authority to execute and deliver this Agreement and to perform its obligations
hereunder. This Agreement constitutes the valid and legally binding obligation
of OSL and the OSL Stockholders, enforceable in accordance with its terms and
conditions.
(d) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge or other restriction of any government,
governmental agency, professional regulatory organization or court to which OSL
is subject or any provision of the charter or bylaws of OSL or (ii) conflict
with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, modify,
or cancel, or require any notice under any agreement, contract, lease, license,
instrument or other arrangement to which OSL is a party or by which it is bound
or to which any of its assets is subject (or result in the imposition of any
Security Interest upon any of its assets). OSL is not required to give any
notice to, make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order for the Parties to
consummate the transactions contemplated by this Agreement.
(e) Subsidiaries and Investments. Except as listed on Section 3(e) of
the Disclosure Schedule, OSL does not own, directly or indirectly, any capital
stock or other equity ownership or proprietary interest in any other
corporation, partnership, association, limited liability company, trust, joint
venture or other entity.
(f) Financial Statement. OSL has furnished SCN with unaudited balance
sheets dated December 31, 1995 and 1996 and April 30, 1997 and unaudited income
statements for the twelve (12) month periods ending December 31, 1996, 1995 and
1994 and the four (4) months ended April 30,1997. Such financial statements,
including the notes thereto, except as indicated therein, were prepared on a
basis consistent with past accounting practices of OSL and fairly present the
results of operations for the periods noted therein. The balance sheets of OSL
delivered by OSL to SCN fairly present the financial condition of OSL at the
date thereof, and except as indicated therein, reflect all claims against and
all debts and liabilities of OSL, fixed or contingent, as of the date thereof.
(g) Undisclosed Liabilities. OSL has no material, uninsured liability
(whether known or unknown, asserted or unasserted, absolute or contingent,
accrued or unaccrued, liquidated or unliquidated, and whether due or to become
due), including any liability for taxes, except for (i) liabilities set forth on
the face of the balance sheet dated as of December 31, 1996 and (ii) liabilities
which have arisen after December 31, 1996 in the Ordinary Course of Business
(none of which results from, arises out of, relates to, is in the nature of, or
was caused in any material respect by any breach of contract, breach of
warranty, tort, infringement, or violation of law).
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<PAGE>
(h) Brokers' Fees. OSL does not have any liability or obligation to pay
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement.
(i) Material Contracts. Section 3(i) of the Disclosure Schedule lists
the following contracts and other material agreements to which OSL is a party:
(i) any agreement (or group of related agreements) for the
lease of real or personal property to or from any Person;
(ii) any agreement (or group of related agreements) for the
purchase or sale of supplies, products, or other personal property or
for the furnishing or receipt of services;
(iii) any agreement concerning a partnership, limited
liability company or joint venture;
(iv) any agreement (or group of related agreements) under
which OSL has created, incurred, assumed, or guaranteed any
indebtedness for borrowed money, or any capitalized lease obligation
pursuant to which it has imposed a Security Interest in respect of any
of its assets, tangible or intangible;
(v) any agreement concerning confidentiality or
noncompetition;
(vi) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other plan or
arrangement for the benefit of OSL's current or former directors,
officers, and employees;
(vii) any agreement for the employment of any individual on a
full-time, part-time, consulting, or other basis providing annual
compensation in excess of $25,000 or providing severance benefits;
(viii) any agreement pursuant to which OSL has advanced or
loaned any amount to any of its directors, officers, and employees;
(ix) any agreement pursuant to which the consequences of a
default or termination could have a material adverse effect on the
business, financial condition, operations, results of operations, or
future prospects of OSL; or
(x) any other agreement (or group of related agreements)
outside the ordinary course of OSL's business or operations the
performance of which involves consideration in excess of $15,000.
OSL has delivered or given SCN access to a correct and complete copy of each
written agreement listed in Section 3(i) of the Disclosure Schedule (as amended
through the Closing Date) and a written summary setting forth the terms and
conditions of each oral agreement referred to in Section 3(i) of the Disclosure
Schedule. With respect to each such agreement: (A) the agreement is legal,
valid, binding, enforceable, and in full force and effect; (B) except as set
forth in Section 3(i) of the Disclosure Schedule, no notice of this Agreement or
consent of any third party is required in order for OSL to execute and deliver
this Agreement or to consummate the transactions contemplated hereby, and, after
assignment to SCN at Closing, the agreement will continue to be legal, valid,
binding, enforceable, and in full force and effect on identical terms; (C) no
party is in breach or default, and no event has occurred which with notice or
lapse of time would constitute a breach or default, or permit termination,
modification, or acceleration, under the agreement; and (D) no party has
repudiated any provision of the agreement.
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(j) Insurance; Malpractice. Section 3(j) of the Disclosure Schedule
contains a list and brief description of all policies or binders of fire,
liability, product liability, workers compensation, health and other forms of
insurance policies or binders currently in force insuring against risks which
will remain in full force and effect at least through the Closing Date. Section
3(j) of the Disclosure Schedule contains a description of all current
malpractice liability insurance policies of OSL Stockholders, OSL and OSL's
professional employees and all predecessor policies in effect since February 1,
1990. Neither OSL, the OSL Stockholders, nor OSL's professional employees have,
in the last seven (7) years, filed a written application for any insurance
coverage relating to OSL's business or property which has been denied by an
insurance agency or carrier. OSL, OSL's professional employees and the OSL
Stockholders have been continuously insured for professional malpractice claims
during the same period. Section 3(j) of the Disclosure Schedule also sets forth
a list of all claims for any insured loss in excess of Five Thousand Dollars
($5,000.00) per occurrence filed by or against OSL, OSL's professional employees
or the OSL Stockholders during the three (3) year period immediately preceding
the date hereof, including workers compensation, general liability,
environmental liability and professional malpractice liability claims. None of
OSL, OSL's professional employees or the OSL Stockholders is in material default
with respect to any provision contained in any such policy and none of them has
failed to give any notice or present any claim under any such policy in due and
timely fashion.
(k) No Changes Prior to Closing Date. During the period from December
31, 1996 through the date hereof, OSL has not (i) incurred any liability or
obligation of any nature (whether known or unknown, asserted or unasserted,
absolute or contingent, accrued or unaccrued, liquidated or unliquidated and
whether due or to become due), except in the Ordinary Course of Business, (ii)
written off as uncollectible any notes or accounts receivable, except write-offs
in the Ordinary Course of Business charged to applicable reserves, none of which
individually or in the aggregate is material to OSL, (iii) conducted its
business in such a manner so as to materially increase its accounts payable or
so as to materially decrease its accounts receivable, (iv) granted any increase
in the rate of wages, salaries, bonuses, or other remunerations of any employee,
except in the Ordinary Course of Business, (v) canceled or waived any claims or
rights of substantial value, (vi) made any change in any method of accounting,
(vii) otherwise conducted its business or entered into any transaction, except
in the usual and ordinary manner and in the Ordinary Course of Business, (viii)
agreed, whether or not in writing, to do any of the foregoing, or (ix) disposed
of its assets other than in the Ordinary Course of Business.
(l) Title; Condition. Section 3(l) of the Disclosure Schedule contains
a complete, true and correct list of those assets which are material to the
business or operations of OSL (the "Practice Assets"). OSL has good and
marketable title to all of the Practice Assets subject to no mortgage, pledge,
lien, lease, conditional sales agreement, option, right of first refusal or any
other encumbrance or charge, including taxes. OSL agrees to remove all security
interests reflected on any search of public records, if any, prior to the
Effective Time and remove any other security interest filed with respect to the
Practice Assets between the date of such search of public records and the
Effective Time.
(m) Litigation. There is no suit, action, proceeding at law or in
equity, arbitration, administrative proceeding or other proceeding or
investigation by any governmental entity pending, or threatened against, or
affecting OSL or any of the Practice Assets, or any physician or other health
care professional engaged or employed by OSL, and there is no basis for any of
the foregoing. None of the actions, suits, proceedings, hearings, and
investigations set forth in Section 3(m) of the Disclosure Schedule could result
in any material adverse change in the operations, results of operations, or
future prospects of the business assets to be operated by SCN after the Closing.
(n) Permits and Licenses. OSL and all physicians and other health care
professionals engaged or employed by OSL have all material permits and licenses
required by all applicable laws; have made all material regulatory filings
necessary for the conduct of OSL's business; and are not in material violation
of any of said permitting or licensing requirements.
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(o) Tax Matters. All federal, state and other tax returns of OSL
required by law to be filed have been timely filed, and OSL has paid or
adequately provided for all taxes (including taxes on properties, income,
franchises, licenses, sales and payrolls) which have become due pursuant to such
returns or pursuant to any assessment, except for any taxes and assessments, the
amount, applicability or validity of which is currently being contested in good
faith by appropriate proceedings and with respect to which OSL has set aside on
its books adequate reserves. There are no tax liens on any of OSL's assets
except those with respect to taxes not yet due and payable. There are no pending
tax examinations of OSL's tax returns nor has OSL received a revenue agent's
report asserting a tax deficiency in the last twelve (12) months. There are not
and will not be at the Closing Date, any claims pending or asserted against OSL
for unpaid taxes by any federal, state or other governmental body. OSL has
withheld from each payment made to employees of OSL the amount of all taxes
(including, but not limited to, federal, state and local income taxes and
Federal Insurance Contribution Act taxes) required to be withheld therefrom and
all amounts customarily withheld therefrom, and has set aside all other employee
contributions or payments customarily set aside with respect to such wages and
has paid or will pay the same to, or has deposited or will deposit such payment
with, the proper tax receiving officers or other appropriate authorities.
(p) Employee Benefit Plans.
(i) List of Plans. Section 3(p) of the Disclosure Schedule
contains an accurate and complete list of all employee benefit plans
("Employee Benefit Plans") within the meaning of Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
whether or not any Employee Benefit Plans are otherwise exempt from the
provisions of ERISA, established, maintained or contributed to by OSL
(including all employers (whether or not incorporated) which by reason
of common control are treated together with OSL and/or the OSL
Stockholders as a single employer within the meaning of Section 414 of
the Code) since September 2, 1974.
(ii) Status of Plans. OSL has never maintained and does not
now maintain or contribute to any Employee Benefit Plan subject to
ERISA which is not in substantial compliance with ERISA, or which has
incurred any accumulated funding deficiency within the meaning of
Section 412 or 418B of the Code, or which has applied for or obtained a
waiver from the Internal Revenue Service of any minimum funding
requirement under Section 412 of the Code or which is subject to Title
IV of ERISA. OSL has not incurred any liability to the Pension Benefit
Guaranty Corporation ("PBGC") in connection with any Employee Benefit
Plan covering any employees of OSL or ceased operations at any facility
or withdrawn from any such Plan in a manner which could subject it to
liability under Section 4062(f), 4063 or 4064 of ERISA, and knows of no
facts or circumstances which might give rise to any liability of OSL to
the PBGC under Title IV of ERISA which could reasonably be anticipated
to result in any claims being made against OSL by the PBGC. OSL has not
incurred any withdrawal liability (including any contingent or
secondary withdrawal liability) within the meaning of Sections 4201 and
4202 of ERISA, to any Employee Benefit Plan which is a Multi employer
Plan (as defined in Section 4001 of ERISA), and no event has occurred,
and there exists no condition or set of circumstances, which represent
a material risk of the occurrence of any withdrawal from or the
partition, termination, reorganization or insolvency of any
Multiemployer Plan which would result in any liability of OSL.
(iii) Contributions. Full payment has been made of all amounts
which OSL is required, under applicable law or under any Employee
Benefit Plan or any agreement relating to any Employee Benefit Plan to
which OSL is a party, to have paid as contributions thereto as of the
last day of the most recent plan year of such Employee Benefit Plan
ended prior to the date hereof. OSL has made
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adequate provision for reserves to meet contributions that have not
been made because they are not yet due under the terms of any Employee
Benefit Plan or related agreements. Benefits under all Employee Benefit
Plans are as represented and have not been increased subsequent to the
date as of which documents have been provided.
(iv) Tax Qualification. Each Employee Benefit Plan intended to
be qualified under Section 401(a) of the Code has been determined to be
so qualified by the Internal Revenue Service and nothing has occurred
since the date of the last such determination which resulted or is
likely to result in the revocation of such determination.
(v) Transactions. OSL has not engaged in any transaction with
respect to the Employee Benefit Plans which would subject it to a
material tax, penalty or liability for prohibited transactions under
ERISA or the Code nor have any of its directors, officers or employees
to the extent they or any of them are fiduciaries with respect to such
plans, breached any of their responsibilities or obligations imposed
upon fiduciaries under Title I of ERISA which would result in any
material claim being made under or by or on behalf of any such plans by
any party with standing to make such claim.
(vi) Other Plans. OSL presently does not maintain any Employee
Benefit Plans or any other foreign pension, welfare or retirement
benefit plans other than those listed on Section 3(p) of the Disclosure
Schedule.
(vii) Documents. OSL has delivered or caused to be delivered
to SCN true and complete copies of (i) all Employee Benefit Plans as in
effect, together with all amendments thereto which will become
effective at a later date, as well as the latest IRS determination
letter obtained with respect to any such Employee Benefit Plan
qualified under Section 401 or 501 of the Code, and (ii) the most
recently filed Form 5500 for each Employee Benefit Plan required to
file such form.
(q) Third-Party Relations. OSL has not received any written notice that
any material patient, supplier, employee or associated physician intends to
cease doing business with OSL.
(r) Compliance with Applicable Laws. OSL has operated in compliance in
all material respects with all federal, state, county and municipal laws,
constitutions, ordinances, statutes, rules, regulations and orders applicable
thereto ("Applicable Laws"). No item disclosed in Section 3(r) of the Disclosure
Schedule could have a material effect on SCN. Neither OSL nor any physician
associated with or employed by OSL has received payment or any remuneration
whatsoever to induce or encourage the referral of patients or the purchase of
goods and/or services as prohibited under 42 U.S.C. ss. 1320a-7b(b), or
otherwise perpetrated any Medicare or Medicaid fraud or abuse nor has any fraud
or abuse been alleged within the last five (5) years by any government agency.
(s) Employee Compensation. OSL has paid or discharged or will pay or
discharge or assume all liabilities for compensation and benefits to which all
employees, including physician employees, are entitled through the Closing Date,
including but not limited to all salaries, wages, bonuses, incentive
compensation, payroll taxes, hospitalization and medical expenses, deferred
compensation, and vacation and sick pay, as well as any severance pay becoming
due as a result of the termination of OSL's employees; provided, however, that
SCN hereby agrees to assume and OSL is not required to pay or discharge prior to
closing, liability for one (1) week of accrued sick leave and one (1) week of
accrued vacation leave for each employee of OSL who becomes an employee of SCN
pursuant to the Merger.
(t) Environmental Matters.
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(i) OSL is in full compliance in all material respects with
all applicable Environmental Laws.
(ii) OSL has not authorized or conducted the disposal or
release, or other handling of any hazardous substance, Medical Waste,
hazardous waste, hazardous material, hazardous constituent, toxic
substance, pollutant, contaminant, asbestos, radon, polychlorinated
biphenyls ("PCBs"), petroleum product or waste (including crude oil or
any fraction thereof), natural gas, liquefied gas, synthetic gas,
biohazardous or biomedical material, or other material defined,
regulated controlled or potentially subject to any remediation
requirement under any Environmental Law (collectively "Hazardous
Materials"), on, in, under or affecting any property owned or leased by
OSL.
(iii) OSL has, and is in compliance, in all material respects,
with, all licenses, permits, registrations, and government
authorizations necessary to operate under all applicable Environmental
Laws. Section 3(t) of the Disclosure Schedule lists all such licenses,
permits, registrations and government authorizations required by any
Environmental Law.
(iv) OSL has not received any written or oral notice from any
governmental agency or entity or any other Person and there is no known
pending or threatened claim, litigation or any administrative agency
proceeding that: (a) alleges a violation of any Environmental Law(s) by
OSL or, with respect to the Practice Assets or any property owned or
leased by OSL (b) alleges that OSL is a liable party or potentially
responsible party under the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. ss. 9601, et seq., or any
analogous state law, (c) has resulted or could result in the attachment
of an environmental lien on any of the Practice Assets or property
owned or leased by OSL, or (d) alleges that OSL is liable for any
contamination of the environment, contamination of any property owned
or leased by OSL, damage to natural resources, property damage, or
personal injury based on its activities or the activities of any
predecessor or third parties involving Hazardous Materials, whether
arising under the Environmental Laws, common law principles, or other
legal standards.
(v) With respect to the generation, transportation, treatment,
storage and disposal or other handling of Medical Waste, OSL has
complied in all material respects with all Medical Waste Laws.
(u) Healthcare Compliance. OSL is participating in or otherwise
authorized to receive reimbursement from Medicare and Medicaid and is a party to
other third-party payor agreements if any, discussed in Section 3(i) of the
Disclosure Schedule. All necessary certifications and contracts required for
participation in such programs are in full force and effect and have not been
amended or otherwise modified, rescinded, revoked or assigned, and no condition
exists or event has occurred which in itself or with the giving of notice or the
lapse of time or both would result in the suspension, revocation, impairment,
forfeiture or non-renewal of any such third-party payor program. OSL is in
compliance in all material respects with the requirements of all such
third-party payors. OSL, the OSL Stockholders, and OSL's physician employees do
not have any financial relationship (whether investment interest, compensation
interest, or otherwise) with any entity to which any of the foregoing refer
patients, except for such financial relationships that qualify for exceptions to
state and federal laws restricting physician referrals to entities in which they
have a financial interest.
(v) Fraud and Abuse. OSL, the OSL Stockholders and persons and entities
providing professional services for OSL have not engaged in any activities which
are prohibited under 42 U.S.C. ss. 1320a-7b, or the regulations promulgated
thereunder pursuant to such statutes, or related state or local statutes or
regulations, or which are prohibited by rules of professional conduct, including
the following: (a) knowingly and willfully making or causing to be made
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a false statement or representation of a material fact in any application for
any benefit or payment; (b) knowingly and willfully making or causing to be made
any false statement or representation of a material fact for use in determining
rights to any benefit or payment; (c) failing to disclose knowledge by a
claimant of the occurrence of any event affecting the initial or continued right
to any benefit or payment on its own behalf or on behalf of another, with intent
to fraudulently secure such benefit or payment; or (d) knowingly and willfully
soliciting or receiving any remuneration (including any kickback, bribe, or
rebate), directly or indirectly, overtly or covertly, in cash or in kind or
offering to pay or receive such remuneration (1) in return for referring an
individual to a person for the furnishing or arranging for the furnishing or any
item or service for which payment may be made in whole or in part by Medicare or
Medicaid, or (2) in return for purchasing, leasing, or ordering or arranging for
or recommending purchasing, leasing, or ordering any good, facility, service or
item for which payment may be made in whole or in part by Medicare or Medicaid.
(w) Practice Compliance. OSL is duly licensed as a medical practice and
is lawfully operated in accordance with all material requirements of all
Applicable Laws and has all necessary authorizations for the use and operation
of a medical practice, all of which are in full force and effect. There are no
outstanding notices of deficiencies relating to OSL issued by any governmental
authority or third-party payor requiring conformity or compliance with any
applicable law or condition for participation with such governmental authority
or third-party payor, and after reasonable and independent inquiry and due
diligence and investigation, OSL has neither received notice nor has any
Knowledge or reason to believe that such necessary authorizations may be revoked
or not renewed in the Ordinary Course of Business.
(x) Rates and Reimbursement Policies. The jurisdiction in which OSL is
located does not currently impose any restrictions or limitations on rates which
may be charged to private pay patients receiving services provided by OSL. OSL
does not have any rate appeal currently pending before any governmental
authority or any administrator of any third-party payor program. No Applicable
Law which affects rates or reimbursement procedures has been enacted,
promulgated or issued within the eighteen (18) months preceding the date of this
Agreement and no such legal requirement is proposed or currently pending in the
jurisdiction in which OSL is located, which could have a material adverse effect
on OSL or may result in the imposition of additional Medicaid, Medicare,
charity, free care, welfare, or other discounted or government assisted patients
at OSL or require OSL to obtain any necessary authorization which OSL does not
currently possess.
(y) Accounts Receivable. All accounts receivable, unbilled invoices and
other debts due or recorded in the respective records and books of account of
OSL, as being due to OSL, (i) are valid, existing and are collectible within one
hundred eighty (180) days following the date of this Agreement without resort to
legal proceedings or use of collection agencies, (ii) have arisen in the
Ordinary Course of Business, and (iii) none of such accounts receivable or other
debts is or will at the Closing Date be subject to any counterclaim or set-off
except to the extent of any such provision or reserve. There has been no
material adverse change since April 30, 1997, in the amount of accounts
receivable or other debts due OSL, the allowances with respect thereto, or
accounts payable of OSL from that reflected in the most recent balance sheet
previously delivered by OSL to SCN.
(z) Guaranties. Except as listed in Section 3(z) of the Disclosure
Schedule, OSL is not a guarantor and otherwise is not liable for any liability
or obligation (including indebtedness) of any other Person.
(aa) Powers of Attorney. There are no outstanding powers of attorney
executed by OSL, except as may be contained in financing documents or security
agreements listed in Section 3(i) of the Disclosure Schedule.
(bb) Tangible Assets. OSL owns or leases all land, buildings,
machinery, equipment, and other tangible assets necessary for the conduct of its
business as presently conducted. Each tangible asset is free from defects, has
been
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maintained in accordance with normal industry practice, and is in good operating
condition and repair (subject to normal wear and tear).
(cc) SCN Share Ownership; Investment Intent.
(i) Neither OSL nor the OSL Stockholders owns, beneficially
or otherwise, any SCN Shares.
(ii) SCN Shares issuable in the Merger are being acquired by
the OSL Stockholders solely for their own account for investment and
not with a view to the distribution thereof, and the OSL Stockholders
acknowledge and understand that the certificate(s) representing such
SCN Shares will bear a legend in substantially the following form:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR UNDER ANY STATE SECURITIES ACT AND CANNOT BE SOLD,
TRANSFERRED, OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER
SUCH ACTS OR UNLESS EXEMPTIONS FROM REGISTRATION ARE
AVAILABLE.
(iii) The OSL Stockholders represent and warrant as follows:
(A) The OSL Stockholders confirm that SCN has made
available to them or to their representatives the opportunity
to ask questions of SCN officers and directors and to acquire
such information about the SCN Shares and the business and
financial condition of SCN as the OSL Stockholders requested,
which additional information has been received.
(B) In deciding to acquire SCN Shares pursuant to
this Agreement, the OSL Stockholders consulted with their
legal, financial, and tax advisors with respect to the Merger
and the nature of the investment together with any additional
information provided under subsection (B) above.
(C) Each OSL Stockholder has adequate means of
providing for his current needs and personal contingencies and
has no need for liquidity in his investment in SCN. Each OSL
Stockholder, either alone or with his representatives, has
such knowledge and experience in financial and business
matters that they are capable of evaluating the merits and
risks of the Merger.
(D) The OSL Stockholders understand and acknowledge
that the investment in the SCN Shares is a speculative
investment which involves a high degree risk of loss of such
OSL Stockholders' investment therein; that there are
substantial restrictions on the transferability of the SCN
Shares under the applicable provisions of the Securities Act
and the rules and regulations promulgated thereunder and
applicable state securities or "blue sky" laws; and,
accordingly, that it may not be possible to liquidate an
investment in the SCN Shares.
(E) The OSL Stockholders have been advised and
understand that (i) the offer and sale of the SCN Shares have
not been registered under the Securities Act; (ii) the SCN
Shares must held indefinitely and the OSL Stockholders must
continue to bear the economic risk of the investment in the
SCN Shares until the offer or sale of the SCN Shares is
subsequently registered under the Securities Act or any "blue
sky" laws or an exemption from such registration is available;
(iii) Rule
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144 promulgated under the Securities Act is not presently
available with respect to the sale of any securities of SCN,
including the SCN Shares, and when and if the SCN Shares may
be disposed of without registration in reliance on Rule 144,
such disposition can be made only in accordance with the terms
and conditions of such Rule; (iv) the restrictive legends
described in Section 3(cc)(ii) shall be placed on the
certificates representing the SCN Shares; and (v) a notation
shall be made in the appropriate records of SCN indicating
that the SCN Shares are subject to restrictions on transfer
and appropriate stop-transfer instructions will be issued to
any transfer agent with respect to the SCN Shares.
(dd) Full Disclosure. No representation or warranty made by OSL in this
Agreement contains or will contain any untrue statement of a material fact or
omits or will omit to state a material fact necessary to make the statements
contained herein or therein not misleading.
4. Representations and Warranties of SCN. SCN represents and warrants
to OSL that the statements contained in this Section 4 are correct and complete
as of the date of this Agreement and will be correct and complete as of the
Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Section 4).
(a) Organization and Qualification. SCN is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Delaware. SCN has the requisite corporate power and authority to carry on its
business as it is now being conducted and to own the properties and assets it
now owns and to consummate the transactions contemplated hereby. SCN is duly
qualified to do business as a foreign corporation in good standing in every
jurisdiction where the failure to be so qualified would have a material adverse
effect on the business of SCN.
(b) Capitalization. As of the date of this Agreement, the entire
authorized capital stock of SCN consists of fifty million (50,000,000) SCN
Shares, of which Fourteen Million Six Hundred Sixty-Two Thousand Five Hundred
Seventy-Five (14,662,575) SCN Shares are issued and outstanding and two million
(2,000,000) shares of preferred stock, none of which are issued and outstanding.
All of the issued and outstanding shares of capital stock of SCN are duly
authorized, validly issued, fully paid and nonassessable. All of the SCN Shares
to be issued in the Merger have been duly authorized and, upon consummation of
the Merger, will be validly issued, fully paid, and nonassessable.
(c) Authorization of Transaction. SCN has full power and authority
(including full corporate power and authority) to execute and deliver this
Agreement and all documents ancillary hereto, to issue the SCN Shares and
otherwise to perform its obligations hereunder; provided, however, that SCN
cannot consummate the transaction unless and until the Merger receives the
approval of the SCN Board of Directors. Except as set forth in the preceding
sentence, this Agreement constitutes the valid and legally binding obligation of
SCN, enforceable in accordance with its terms and conditions subject to
applicable bankruptcy, insolvency, reorganization, moratorium, and other similar
laws affecting creditors' rights generally and the availability of equitable
remedies generally.
(d) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge or other restriction of any government,
governmental agency, professional regulatory organization or court to which SCN
is subject or may become subject as a result of the transaction contemplated by
this Agreement, or any provision of the certificate of incorporation or bylaws
of SCN or (ii) conflict with, result in a breach of, constitute a default under,
result in the acceleration of, create in any party the right to accelerate,
terminate, modify, or cancel, or require any notice under any agreement,
contract, lease, license, instrument or other arrangement to which SCN is a
party or by which it is bound or to which any of its assets is subject. Other
than state and federal filings
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required by the Securities Act and similar state statutes, SCN does not need to
give any notice to, make any filing with, or obtain any authorization, consent,
or approval of any government or governmental agency in order for the Parties to
consummate the transactions contemplated by this Agreement.
(e) Brokers' Fees. SCN does not have any liability or obligation to pay
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which SCN could become liable or
obligated.
(f) Compliance with Applicable Laws. SCN has operated in compliance in
all material respects with all Applicable Laws. No item disclosed in Section
4(f) of the Disclosure Schedule could have a material effect on SCN.
(g) Financial Statements. SCN has furnished OSL and the OSL
Stockholders with audited consolidated balance sheets dated December 31, 1995
and 1996, an audited consolidated statements of operations for the twelve (12)
month periods ending December 31, 1996, an unaudited consolidated balance sheet
dated March 31, 1997 and an unaudited consolidated statement of operations for
the three (3) month period ended March 31, 1997. Such income statements of
operations, including the notes thereto, except as indicated therein, were
prepared in conformance with generally accepted accounting principles, on a
basis consistent with past accounting practices of SCN and fairly present the
results of operations for the periods noted therein. The balance sheets of SCN
delivered by SCN to OSL fairly present the financial condition of SCN at the
date thereof, and except as indicated therein, reflect all claims against and
all debts and liabilities of OSL, fixed or contingent, as of the date thereof.
(h) Undisclosed Liabilities. SCN has no uninsured liability (whether
known or unknown, asserted or unasserted, absolute or contingent, accrued or
unaccrued, liquidated or unliquidated, and whether due or to become due),
including any liability for taxes, except for (i) liabilities set forth on the
face of the balance sheet dated as of March 31, 1997 and (ii) liabilities which
have arisen after March 31, 1997 in the Ordinary Course of Business.
(i) Absence of Certain Changes or Events. Since the date of the latest
financial statements of SCN delivered to OSL, there has not been (a) any
material adverse change in the business, results of operations, assets,
financial condition or prospects or the manner of conducting the business of SCN
other than changes in the ordinary course of business, none of which
individually or in the aggregate have had or may have a material adverse effect
on the business, results of operation, assets, financial condition or prospects
of SCN; (b) any damage, destruction or loss, whether covered by insurance or
not, which has had or will have a material adverse effect on the business,
results of operations, assets, financial condition or prospects of SCN; or (c)
any other material transaction entered into by SCN other than in the ordinary
course of business.
(j) Litigation. Except as set forth in Section 4(j) of the Disclosure
Schedule, there is no material suit, action, proceeding at law or in equity,
arbitration, administrative proceeding or other proceeding or investigation by
any governmental entity pending, or threatened against, or affecting SCN and to
the best of SCN's Knowledge, there is no basis for any of the foregoing. None of
the actions, suits, proceedings, hearings, and investigations set forth in
Section 4(j) of the Disclosure Schedule could result in any material adverse
change in the operations, results of operations, or future prospects of SCN.
(k) Tax Matters. All federal, state and other tax returns of SCN
required by law to be filed have been timely filed, and SCN has paid or
adequately provided for all taxes (including taxes on properties, income,
franchises, licenses, sales and payrolls) which have become due pursuant to such
returns or pursuant to any assessment, except for any taxes and assessments, the
amount, applicability or validity of which is currently being contested in good
faith by appropriate
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proceedings and with respect to which SCN has set aside on its books adequate
reserves. There are no tax liens on any of SCN's assets except those with
respect to taxes not yet due and payable. There are no pending tax examinations
of SCN's tax returns nor has SCN received a revenue agent's report asserting a
tax deficiency in the last twelve (12) months.
(l) Insurance. Section 4(l) of the Disclosure Schedule contains a list
and brief description of all policies or binders of fire, liability, product
liability, workers compensation, health and other forms of insurance policies or
binders currently in force insuring against risks. To the best of SCN Knowledge,
such policies or binders provide adequate insurance of the properties and
conduct of SCN's business.
(m) Public Filings. SCN has made all filings with the Securities and
Exchange Commission that it has been required to make under the Securities Act
and the Exchange Act (collectively, the "Public Reports"). Each of the Public
Reports has complied with the Securities Act and the Exchange Act in all
material respects. None of the Public Reports, as of their respective dates,
contained any untrue statement of a material fact or omitted to state a material
fact necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading.
(n) Hart-Scott-Rodino. SCN is of sufficiently small size as to cause
the consummation of the transactions contemplated hereby not to be subject to,
or to be exempt from, the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended.
(o) Full Disclosure. No representation or warranty made by SCN in this
Agreement or in connection with this transaction or in any document furnished
pursuant to this Agreement contains or will contain any untrue statement of a
material fact or omits or will omit to state a material fact necessary to make
the statements contained herein or therein not misleading.
5. Covenants. The Parties agree as follows with respect to the period
from and after the execution of this Agreement.
(a) General. Each of the Parties will use its or his best efforts to
take all action and to do all things necessary in order to consummate and make
effective the transactions contemplated by this Agreement (including
satisfaction of the closing conditions set forth in Section 6 below) to be
satisfied by him or it. This paragraph shall not be construed to obligate any of
the Parties to waive any condition precedent to his or its obligations to
perform hereunder.
(b) Notices and Consents. OSL will give any notices to third parties,
and will use its best efforts to obtain any third party consents necessary or
required to consummate the Merger or that SCN reasonably may request in
connection with the matters referred to in Section 3(i) above.
(c) Regulatory Matters and Approvals. Each of the Parties will give any
notices to, make any filings with, and use its reasonable best efforts to obtain
any necessary authorizations, consents, and approvals of governments and
governmental agencies in connection with the transactions contemplated by this
Agreement. Without limiting the generality of the foregoing:
(i) Tax Reporting. The Merger is intended to qualify as a
reorganization under Code Section 368(a)(1)(A). Each of the parties
agrees to report this transaction for all purposes in accordance with
the foregoing.
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(ii) Licenses and Permits. Each of the Parties shall have
obtained all licenses and permits necessary to operate their respective
businesses.
(d) Operation of Business. From the date of this Agreement through the
Closing Date, OSL will not engage in any practice, take any action, or enter
into any transaction outside the Ordinary Course of Business. Without limiting
the generality of the foregoing:
(i) OSL will not authorize or effect any change in its
charter documents or bylaws;
(ii) OSL will not grant any options, warrants, or other rights
to purchase or obtain any of its capital stock or issue, sell or
otherwise dispose of any of its capital stock (except upon the
conversion or exercise of options, warrants, and other rights currently
outstanding);
(iii) OSL will not declare, set aside, or pay any dividend or
distribution with respect to its capital stock (whether in cash or in
kind), or redeem, repurchase, or otherwise acquire any of its capital
stock in either case outside the Ordinary Course of Business without
the consent of SCN, which consent shall not be unreasonably withheld;
(iv) OSL will not issue any note, bond or other debt security
or create, incur, assume or guarantee any indebtedness for borrowed
money or capitalized lease obligation outside the Ordinary Course of
Business;
(v) OSL will not impose any Security Interest upon any of its
assets outside the Ordinary Course of Business;
(vi) OSL will not make any capital investment in, make any
loan to, or acquire the securities or assets of any other Person
outside the Ordinary Course of Business;
(vii) OSL will not make any change in employment terms for any
of its directors, officers or employees outside the Ordinary Course of
Business; and
(viii) OSL will not commit to do any of the foregoing.
(e) Further Acts and Assurances. OSL and the OSL Stockholders shall, at
any time and from time to time at and after the Effective Time, upon request of
SCN, take any and all steps necessary to place SCN in possession and operating
control of the Practice Assets and to effectuate the Merger, and will do,
execute, acknowledge and deliver, or will cause to be done, executed,
acknowledged and delivered, all such further acts, deeds, assignments,
transfers, conveyances, powers of attorney, and assurances as may be required
for better transferring and confirming to SCN or its successors and assigns, or
for better reducing to possession, any or all of the Practice Assets or
consummating the Merger.
(f) Full Access. Upon three (3) days prior notice, OSL will permit
representatives of SCN to have full access to all premises, properties,
personnel, books, records (including tax records), contracts, and documents of
or pertaining to OSL during normal business hours. SCN will treat and hold as
such any confidential information it receives from OSL in the course of the
reviews contemplated by this Section 5(f), will not use any of the confidential
information except in connection with this Agreement, and, if this Agreement is
terminated for any reason whatsoever, agrees to return to OSL all tangible
embodiments (and all copies) thereof which are in its possession.
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(g) Notice of Developments. Each Party will give prompt written notice
to the other Parties of any material adverse development causing a breach of any
of its own representations and warranties in Section 3 or Section 4 above, as
applicable. No disclosure by any Party pursuant to this Section 5(g), however,
shall be deemed to amend or supplement the Disclosure Schedule or to prevent or
cure any misrepresentation, breach of warranty, or breach of covenant.
(h) Exclusivity. Until the earlier of (i) July 31, 1997, or (ii) the
Effective Time, OSL will not solicit, initiate, or encourage the submission of
any proposal or offer from any Person relating to the acquisition of all or
substantially all of the capital stock or assets of OSL (including any
acquisition structured as a merger, consolidation, or share exchange). OSL shall
notify SCN immediately if any Person makes any proposal, offer, inquiry, or
contact with respect to any of the foregoing.
(i) Collection of Accounts Receivable. The OSL Stockholders agree to
cooperate with SCN in the collection of accounts receivable owned by OSL as of
the Effective Time acquired pursuant to this Agreement. SCN, at its option,
shall have the right to require the collection of said accounts receivable
through a lockbox or bank account sweep arrangement. In connection therewith,
the OSL Stockholders agree to execute the necessary documents and follow the
necessary procedures as described in the Service Agreement to accommodate the
collection of the accounts receivable in such manner.
(j) Payment of Expenses. On or before the Effective Time, OSL shall
have paid or discharged any and all liabilities or charges for costs or fees
owed as a result of the transaction contemplated by this Agreement.
(k) Corporate Authorization. By execution of this Agreement, the OSL
Stockholders agree to take any and all steps necessary and will do, execute,
acknowledge and deliver, or will cause to be done, executed, acknowledged and
delivered, all such acts, deeds and assurances required in order to consummate
the Merger, including voting as directors of OSL in favor of the Merger and
voting as stockholders of OSL in favor of the Merger at any meetings (or in any
action by written consent) required by the Virginia Stock Corporation Act.
(l) Malpractice Insurance. On or before the Effective Time, all
physicians and employees of OSL must be covered by medical malpractice insurance
and, if required by SCN, medical malpractice tail insurance to cover prior
occurrences shall be procured by OSL.
(m) Distribution of Excluded Assets. Prior to the Effective Time, OSL
shall have distributed to the OSL Stockholders all of the assets listed on
Schedule 5(m), which constitute the entirety of the assets owned by OSL not
being acquired by SCN (the "Excluded Assets").
(n) Satisfaction of Indebtedness. Prior to the Effective Time, OSL
shall have caused the payoff of all liabilities owed to third-parties (with the
exception of thirty (30) days worth of trade payables, one (1) week of accrued
vacation pay per employee, and one (1) week of accrued sick leave per employee,
which shall be assumed by SCN) and all indebtedness owed to banks or other
financial institutions or lenders or shall have caused the assumption thereof by
a new entity organized by the OSL Stockholders. Notwithstanding any contrary
provision contained herein, SCN shall not be deemed to have assumed, nor shall
SCN assume: (i) any liability which may be incurred by reason of any breach of
or default under such contracts, leases, commitments or obligations which
occurred prior to the Closing Date; (ii) any liability for any employee benefits
payable to employees of OSL, including, but not limited to, liabilities arising
under any Employee Benefit Plan; (iii) any liability based upon or arising out
of a violation of any laws by OSL, including, without limiting the generality of
the foregoing, any such liability which may arise in connection with agreements,
contracts, commitments or provision of services by OSL; nor (iv) any liability
based upon or arising out of any tortious
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or wrongful actions of OSL or any Physician Owner, or any liability for the
payment of any taxes imposed by law on OSL arising from or by reason of the
transactions contemplated by this Agreement. In addition, the OSL Stockholders
shall cause to be filed on behalf of OSL all final tax returns required by
Applicable Law to be filed and shall pay all Taxes owed by OSL for the tax
period ended as of the Effective Time.
(o) Conversion into Business Corporation. If required by the Virginia
Stock Corporation Act, prior to the Effective Time, the OSL Stockholders shall
have caused the conversion of OSL to a Virginia business corporation.
(p) Employee Benefit Plans. Prior to the Effective Time, all Employee
Benefit Plans other than employee benefit plans which are both "pension plans"
under Section 3 of ERISA ("Pension Plan") and tax qualified under Section 401(a)
of the Code, shall be terminated in accordance with Applicable Law. Prior to the
Effective Time, OSL will take all necessary actions to ensure that on and after
the Effective Time no further benefits will accrue under the Pension Plans
within the contemplation of Section 410(b) of the Code. As soon as practicable
after the Effective Time, SCN shall merge the Pension Plan of OSL into the
corresponding plan(s) of SCN; provided, however, that such merger of Pension
Plans shall not occur until: (i) SCN, acting reasonably, has satisfied itself
that OSL's Pension Plans meet all applicable qualification requirements of the
Internal Revenue Code; (ii) SCN, acting reasonably, has tendered to OSL such
amendments to OSL's Pension Plans as SCN deems necessary or appropriate to
conform such plans to the pension plans of SCN and (iii) all amendments to the
Pension Plans requested by SCN have been made; and (iv) SCN, acting reasonably,
is satisfied that OSL has taken all actions necessary to ensure operational
compliance with the operative documents and Applicable Law.
(q) Securities Laws Compliance. No OSL Stockholder shall dispose of the
SCN Shares received as a result of the Merger except in accordance with the
provisions of the Securities Act, the provisions of any rule adopted by the
Securities and Exchange Commission pursuant to the Securities Act and the "blue
sky" laws of any applicable state.
6. Conditions to Obligation to Close
(a) Conditions to Obligation of SCN. The obligation of SCN to
consummate the Merger is subject to satisfaction of the following conditions or
before the Closing Date:
(i) OSL shall have procured all of the third party consents
specified in Section 5(b) above;
(ii) the representations and warranties set forth in Section 3
above shall be true and correct in all material respects at and as of
the Closing Date;
(iii) OSL shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(iv) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency
of any federal, state, local, or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction, judgment, order, decree,
ruling, or charge would (A) prevent consummation of any of the
transactions contemplated by this Agreement, (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation, or (C) affect adversely the right of the Surviving
Corporation to own the former assets or to operate the former business
of OSL;
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(v) SCN shall have received the resignations, effective as of
the Closing, of each director and officer of OSL other than those whom
SCN shall have specified in writing at least five (5) business days
prior to the Closing;
(vi) all actions to be taken by OSL and/or the OSL
Stockholders in connection with consummation of the transactions
contemplated hereby and all certificates, opinions, instruments, and
other documents required to effect the transactions contemplated hereby
have been taken or delivered to SCN and are satisfactory in form and
substance to SCN;
(vii) the issuance of the SCN Shares to the OSL Stockholders
will not violate federal securities laws or the securities laws of any
state of the United States;
(viii) SCN shall have completed and be satisfied with its due
diligence review, including SCN's review of the Disclosure Schedule;
and
(ix) SCN's Board of Directors shall have approved the Merger
in their sole and absolute discretion.
SCN may waive any condition specified in this Section 6(a) if it
executes a writing so stating at or prior to the Closing.
(b) Conditions to Obligation of OSL. The obligation of OSL to
consummate the Merger is subject to satisfaction of the following conditions:
(i) This Agreement and the Merger shall have received the OSL
director and OSL Stockholders' approval required by the Virginia Stock
Corporation Act.
(ii) the representations and warranties set forth in Section 4
above shall be true and correct in all material respects at and as of
the Closing Date;
(iii) SCN shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing; and
(iv) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency
of any federal, state, local or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction, judgment, order, decree,
ruling or charge would (A) prevent consummation of any of the
transactions contemplated by this Agreement, (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation, or (C) affect adversely the right of the Surviving
Corporation to own the former assets of OSL.
OSL may waive any condition specified in this Section 6(b) if it
executes a writing so stating at or prior to the Closing.
7. Items to be Delivered at or Prior to Closing
(a) By the OSL Stockholders or OSL. The OSL Stockholders or OSL, as
applicable, shall execute and deliver to SCN, prior to or at the Closing:
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(i) Certified resolutions of the directors and stockholders of
OSL authorizing the execution of all documents and the consummation of
all transactions contemplated hereby;
(ii) The Virginia Articles of Merger which shall be in the
form required by SCN's legal counsel;
(iii) Stock Certificates representing ownership of all shares
of OSL, duly endorsed to SCN;
(iv) A Service Agreement in the form attached hereto as
Exhibit 7(a)(iv);
(v) A certificate duly executed by the President of OSL and
the OSL Stockholders stating as of the Closing Date, all
representations and warranties are true, all covenants and agreements
contained in the Agreement to be performed by OSL and the OSL
Stockholders have been performed or complied with and all conditions to
closing have been complied with;
(vi) An opinion from OSL's counsel in substantially the form
attached hereto as Exhibit 7(a)(vi); and
(vii) Such other instruments as may be reasonably requested by
SCN in order to effect to or carry out the intent of this Agreement.
(b) By SCN. SCN shall deliver to OSL at or prior to the Closing:
(i) Stock Certificates representing the SCN Shares being
issued to the OSL Stockholders pursuant to Section 2(d)(v);
(ii) The Delaware Certificate of Merger in substantially the
form attached hereto as Exhibit 2(a)(1);
(iii) An opinion from SCN's counsel in substantially the form
attached hereto as Exhibit 7(b)(iii);
(iv) A certificate, duly executed by an officer of SCN,
stating as of the Closing Date, all representations and warranties of
SCN are true, all covenants and agreements contained in the Agreement
to be performed by SCN have been performed or complied with and all
conditions to Closing have been satisfied;
(v) A Service Agreement in the form attached hereto as Exhibit
7(a)(iv); and
(vi) Such other instruments as may be reasonably requested by
OSL or the OSL Stockholders in order to effect to or carry out the
intent of this Agreement.
8. Termination
(a) Termination of Agreement. Either of the Parties may terminate this
Agreement with the prior authorization of its board of directors (whether before
or after stockholder approval) as provided below:
(i) the Parties may terminate this Agreement by mutual written
consent at any time prior to the Effective Time;
(ii) SCN may terminate this Agreement by giving written notice
to OSL at any time prior to the Effective Time (A) in the event OSL has
breached any representation, warranty, or covenant contained in this
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Agreement in any material respect, SCN has notified OSL of the breach,
and the breach has continued without cure for a period of 30 days after
the notice of breach, (B) if the Closing shall not have occurred on or
before July 31, 1997 by reason of the failure of any condition
precedent under Section 6(a) hereof (unless the failure results
primarily from SCN breaching any representation, warranty, or covenant
contained in this Agreement) or (C) in accordance with Section
6(a)(viii) or (ix); or
(iii) OSL may terminate this Agreement by giving written
notice to SCN at any time prior to the Effective Time (A) in the event
SCN has breached any representation, warranty, or covenant contained in
this Agreement in any material respect, OSL has notified SCN of the
breach, and the breach has continued without cure for a period of 30
days after the notice of breach or (B) if the Closing shall not have
occurred on or before July 31, 1997 by reason of the failure of any
condition precedent under Section 6(b) hereof (unless the failure
results primarily from OSL breaching any representation, warranty, or
covenant contained in this Agreement).
(b) Effect of Termination. If any Party terminates this Agreement
pursuant to Section 8(a) above, all rights and obligations of the Parties
hereunder shall terminate without any liability of any party to any other Party
(except for any liability of any Party then in breach).
9. Indemnification.
(a) Indemnification by the OSL Stockholders. The OSL Stockholders,
separately and not jointly and severally, agree to and shall defend, indemnify
and hold harmless SCN, its successors and assigns, officers and directors
against any and all losses, liabilities, expenses (including, but without
limitation, reasonable attorneys fees) and damages resulting from or arising out
of the breach, untruth or inaccuracy of any representation, warranty or covenant
of OSL or the OSL Stockholders set forth in this Agreement or from any loss,
liability or expense resulting from or related to OSL's operation of its
business prior to the Effective Time. The OSL Stockholders shall not be liable
to SCN for any claims against the OSL Stockholders under this Section 9(a)
unless and until the aggregate of all claims against the OSL Stockholders
exceeds the sum of $25,000.00, whereupon SCN shall be entitled to recover the
full amount of all claims, including the initial $25,000.00. Notwithstanding the
foregoing provisions, the obligations of any OSL Stockholder hereunder to
indemnify SCN shall not exceed the value (at the time of Closing) of the portion
of the SCN shares and cash delivered to such OSL Stockholder at the Closing. In
addition to the foregoing $25,000 "threshold", in the event SCN has received
service fees (as defined in the Service Agreement) pursuant to the Service
Agreement in excess of the Base Service Fee (as defined in the Service
Agreement) then (i) SCN shall charge the first $100,000 of claims to OSC II as a
Clinic Expense(as defined in the Service Agreement) and the Physician Owners
shall cause OSC II to pay such claim as a Clinic Expense pursuant to the terms
of the Service Agreement and (ii) any amounts in excess of $100,000 shall be
paid to SCN directly by the Physician Owners.
(b) Notice to the OSL Stockholders; Opportunity to Defend. SCN agrees
to give prompt notice to the OSL Stockholders of the assertion of any claim, or
the commencement of any suit, action or proceeding, in respect of which
indemnity may be sought under Section 9(a). The OSL Stockholders may participate
in and at their election, or at the request of SCN, assumes the defense of any
such suit, action or proceeding at the OSL Stockholders' expense. The OSL
Stockholders shall not be liable under Section 9(a) for any settlement effected
without their consent of any claim, litigation or proceeding in respect of which
indemnity may be sought under Section 9(a) which consent shall not be
unreasonably withheld.
(c) General Indemnification by SCN. SCN agrees to and shall defend,
indemnify and hold harmless the OSL Stockholders, their heirs and assigns
against any and all losses, liabilities, expenses (including, but without
limitation, reasonable attorneys fees) and damages resulting from the breach,
untruth or inaccuracy of any representation, warranty
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or covenant of SCN set forth in this Agreement. SCN shall not be liable to the
OSL Stockholders for any claims against SCN under this Section 9(c) unless and
until the aggregate of all claims against SCN exceeds the sum of $25,000.00,
whereupon the OSL Stockholders shall be entitled to recover the full amount of
all claims, including the initial $25,000.00.
(d) Notice to SCN; Opportunity to Defend. The OSL Stockholders agree to
give prompt notice to SCN of the assertion of any claim, or the commencement of
any suit, action or proceeding in respect of which indemnity may be sought under
Section 9(c). SCN may participate in and at its election, or at the request of
the OSL Stockholders, assume the defense of any such suit, action or proceeding
at SCN's expense. SCN shall not be liable under Section 9(c) for any settlement
effected without its consent of any claim, litigation or proceeding in respect
of which indemnity may be sought hereunder, which consent shall not be
unreasonably withheld.
(e) Right of Set-off. In the event of any breach of warranty,
representation, covenant or agreement by any party hereto, the Claiming Party
(as defined in the Service Agreement) may set-off against any Additional Payment
(as defined in the Service Agreement) to the other party pursuant to the
provisions of Section 10.4.3 of the Service Agreement.
10. Miscellaneous.
(a) Survival. The representations and warranties of the OSL
Stockholders, OSL and SCN contained in this Agreement and the indemnifications
contained herein shall survive the Closing for a period of two (2) years.
Notwithstanding the foregoing, any claim to indemnification that a party may
have arising from the breach of representations and warranties or covenants
relating to tax matters shall survive for three (3) years following the Closing
Date. Any matter to which indemnification pertains and with respect to which a
claim has been asserted or threatened following the Closing Date shall continue
to be subject to the indemnification under this Agreement until finally
terminated, settled, resolved or adjudicated; and all terms, conditions and
stipulations of this Agreement shall likewise continue to apply.
(b) No Third-Party Beneficiaries. Except as provided in Section 9(e),
this Agreement shall not confer any rights or remedies upon any Person other
than the parties and their respective successors and permitted assigns.
(c) Entire Agreement. This Agreement (including the documents referred
to herein) constitutes the entire agreement between the parties and supersedes
any prior understandings, agreements, or representations by or between the
parties, written or oral, to the extent they related in any way to the subject
matter hereof.
(d) Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties named herein and their respective successors
and permitted assigns. No party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other Party.
(e) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(f) Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(g) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
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business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to OSL: Copy to:
Orthopaedic Surgery Centers, P.C. II T. Braxton McKee, Esq.
3300 High Street Kaufman & Canoles
Portsmouth, VA 23707 One Commercial Place
Attn: President P. O. Box 3037
Facsimile: (757) 397-0236 Norfolk, VA 23514
Facsimile: (757) 624-3169
If to SCN:
Copy to:
Kerry R. Hicks, President
Specialty Care Network, Inc. David T. Popwell, Esq.
44 Union Boulevard, Suite 600 Baker, Donelson, Bearman & Caldwell
Lakewood, Colorado 80228 165 Madison Ave, Suite 2100
Facsimile: (303) 716-1298 Memphis, Tennessee 38103
Facsimile: (901) 577-2303
Any party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other party
notice in the manner herein set forth.
(h) Governing Law; Venue. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of Delaware without
giving effect to any choice or conflict of law provision or rule (whether of the
State of Delaware or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of Delaware. Each of the
parties submits to the jurisdiction of any state or federal court sitting in
Norfolk, Virginia, in any action or proceeding arising out of or relating to
this Agreement and agrees that all claims in respect of the action or proceeding
may be heard and determined in any such court. Each party also agrees not to
bring any action or proceeding arising out of or relating to this Agreement in
any other court. Each of the parties waives any defense of inconvenient forum to
the maintenance of any action or proceeding so brought and waives any bond,
surety, or other security that might be required of any other party with respect
thereto.
(i) Amendments and Waivers. The parties may mutually amend any
provision of this Agreement at any time prior to the Effective Time with the
prior authorization of their respective boards of directors; provided, however,
that any amendment effected subsequent to OSL stockholder approval will be
subject to the restrictions contained in the Virginia Stock Corporation Act. No
amendment of any provision of this Agreement shall be valid unless the same
shall be in writing and signed by both of the parties. No waiver by any party of
any default, misrepresentation, or breach of warranty or covenant hereunder,
whether intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
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(j) Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(k) Expenses. Each of the Parties will bear its own costs and expenses
(including legal fees and expenses) incurred in connection with this Agreement
and the transactions contemplated hereby.
(l) Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context otherwise requires. The
word "including" shall mean including without limitation.
(m) No Referrals Required. The Parties agree that no part of this
Agreement shall be construed to induce or encourage the referral of patients or
the purchase of health care services or supplies. The Parties acknowledge that
there is no requirement under this Agreement or any other agreement between OSC
II and SCN that any party refer any patients to any health care provider or
purchase any health care goods or services from any source. Additionally, no
payment under this Agreement is in return for the referral of patients, if any,
or in return for purchasing, leasing or ordering services from SCN or any of
SCN's affiliates. The Parties may refer patients to any company or person
providing services and will make such referrals, if any, consistent with
professional medical judgment and the needs and wishes of the relevant patients.
(n) Incorporation of Exhibits and Schedules. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
* * * * *
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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the
date first above written.
SPECIALTY CARE NETWORK, INC.
By:
Title:
ORTHOPAEDIC SURGERY, LTD.
By:
Title:
J.C.P. COLLIER, JR., M.D., Stockholder
RICHARD D. KNAUFT, M.D., Stockholder
WAYNE T. JOHNSON, M.D., Stockholder
ERNESTO LUCIANO PEREZ, M.D., Stockholder
MARK B. KERNER, M.D., Stockholder
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EXHIBIT LIST
EXHIBIT 1 - Agreement and Plan of Merger of Orthopaedic Surgery, Ltd.
with and into Specialty Care Network, Inc.
EXHIBIT 2(a)(1) - Certificate of Merger of Orthopaedic Surgery, Ltd. into
Specialty Care Network, Inc.
EXHIBIT 2(a)(2) - Form of Virginia Articles of Merger
EXHIBIT 2(d)(v) - Consideration Allocation
EXHIBIT 5(m) - Excluded Assets
EXHIBIT 7(b)(iv) - Service Agreement
EXHIBIT 7(a)(vi) - OSL Opinion Letter
EXHIBIT 7(b)(iii) - SCN Opinion Letter
MERGER AGREEMENT
BY AND AMONG
SPECIALTY CARE NETWORK, INC.,
NEAL C. SMALL, M.D. & ASSOCIATES, P.A.,
NEAL C. SMALL, M.D.
AND
ALEXANDER I. GLOGAU, M.D.
July 3, 1997
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TABLE OF CONTENTS
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1. Definitions.........................................................................1
2. Basic Transaction...................................................................4
(a) The Merger................................................................4
(b) The Closing...............................................................4
(c) Actions at the Closing....................................................4
(d) Effect of Merger..........................................................4
(e) No Fractional Shares......................................................5
3. Representations and Warranties of NCS&A and NCS&A Stockholder.......................5
(a) Organization, Qualification, and Corporate Power..........................5
(b) NCS&A Stockholder Interests and Capitalization............................5
(c) Authorization of Transaction..............................................5
(d) Noncontravention..........................................................5
(e) Subsidiaries and Investments..............................................6
(f) Financial Statement.......................................................6
(g) Undisclosed Liabilities...................................................6
(h) Brokers' Fees.............................................................6
(i) Material Contracts........................................................6
(j) Insurance; Malpractice....................................................7
(k) No Changes Prior to Closing Date..........................................7
(l) Title; Condition..........................................................8
(m) Litigation................................................................8
(n) Permits and Licenses......................................................8
(o) Tax Matters...............................................................8
(p) Employee Benefit Plans....................................................8
(q) Third-Party Relations.....................................................9
(r) Compliance with Applicable Laws..........................................10
(s) Employee Compensation....................................................10
(t) Environmental Matters....................................................10
(u) Healthcare Compliance....................................................10
(v) Fraud and Abuse..........................................................11
(w) Practice Compliance......................................................11
(x) Rates and Reimbursement Policies.........................................11
(y) Accounts Receivable......................................................11
(z) Guaranties...............................................................12
(aa) Powers of Attorney......................................................12
(bb) Tangible Assets.........................................................12
(cc) SCN Share Ownership; Investment Intent..................................12
(dd) Full Disclosure.........................................................13
4. Representations and Warranties of SCN..............................................13
(a) Organization.............................................................13
(b) Capitalization...........................................................13
(c) Authorization of Transaction.............................................13
(d) Noncontravention.........................................................13
(e) Brokers' Fees............................................................14
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(f) Securities Filings.......................................................14
5. Covenants..........................................................................14
(a) General..................................................................14
(b) Notices and Consents.....................................................14
(c) Regulatory Matters and Approvals.........................................14
(d) Operation of Business....................................................14
(e) Further Acts and Assurances..............................................15
(f) Full Access..............................................................15
(g) Notice of Developments...................................................15
(h) Exclusivity..............................................................15
(i) Collection of Accounts Receivable........................................15
(j) Payment of Expenses......................................................16
(k) Corporate Authorization..................................................16
(l) Malpractice Insurance....................................................16
(m) Distribution of Excluded Assets..........................................16
(n) Satisfaction of Indebtedness.............................................16
(o) Conversion into Business Corporation.....................................16
(p) Employee Benefit Plans...................................................16
(q) Securities Laws Compliance...............................................16
(r) Piggyback Registration...................................................17
6. Conditions to Obligation to Close..................................................18
(a) Conditions to Obligation of SCN..........................................18
(b) Conditions to Obligation of NCS&A........................................19
7. Items to be Delivered at or Prior to Closing.......................................19
(a) By the NCS&A Stockholder or NCS&A........................................19
(b) By SCN...................................................................20
8. Termination........................................................................20
(a) Termination of Agreement.................................................20
(b) Effect of Termination....................................................21
9. Indemnification....................................................................21
(a) Indemnification by the NCS&A Stockholder.................................21
(b) Notice to the NCS&A Stockholder; Opportunity to Defend...................21
(c) General Indemnification by SCN...........................................21
(d) Notice to SCN; Opportunity to Defend.....................................21
(e) Right of Setoff..........................................................21
10. Miscellaneous.....................................................................22
(a) Survival.................................................................22
(b) No Third-Party Beneficiaries.............................................22
(c) Entire Agreement.........................................................22
(d) Succession and Assignment................................................22
(e) Counterparts.............................................................22
(f) Headings.................................................................22
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(g) Notices..................................................................22
(h) Governing Law; Venue.....................................................23
(i) Amendments and Waivers...................................................23
(j) Severability.............................................................23
(k) Expenses.................................................................23
(l) Construction.............................................................24
(n) Incorporation of Exhibits and Schedules..................................24
EXHIBIT 1 AGREEMENT AND PLAN OF MERGER...............................Exhibit 1-1
EXHIBIT 2(a)(1) CERTIFICATE OF MERGER................................Exhibit 2(a)(1)-1
EXHIBIT 2(a)(2) TEXAS ARTICLES OF MERGER.............................Exhibit 2(a)(2)-1
EXHIBIT 7(a)(iv) SERVICE AGREEMENT...........................................7(a)(iv)-1
EXHIBIT 7(a)(vi) NCS&A OPINION LETTER................................Exhibit 7(a)(vi)-1
EXHIBIT 7(b)(iii) SCN OPINION LETTER.................................Exhibit 7(b)(iii)-1
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MERGER AGREEMENT
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THIS MERGER AGREEMENT (this "Agreement") is entered into this the 3rd
day of July, 1997, by and among SPECIALTY CARE NETWORK, INC., a Delaware
corporation ("SCN"), NEAL C. SMALL, M.D. & ASSOCIATES, P.A., a Texas
professional association ("NCS&A") and NEAL C. SMALL, M.D. and ALEXANDER I.
GLOGAU, M.D. (collectively, the "NCS&A Stockholder"). SCN, NCS&A and the NCS&A
Stockholder are referred to collectively herein as the "Parties".
W I T N E S S E T H:
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WHEREAS, SCN and NCS&A have determined that it is desirable and in the
best interests of their respective corporations and stockholders that NCS&A
merges with and into SCN, with SCN as the surviving corporation, on the terms
and subject to the conditions set forth in this Agreement and the corresponding
Agreement and Plan of Merger in the form attached hereto as Exhibit 1 (the
"Agreement and Plan of Merger");
WHEREAS, SCN and NCS&A intend that the transaction contemplated by this
Agreement shall qualify as a tax-free reorganization under Section 368(a)(1)(A)
of the Internal Revenue Code of 1986, as amended (the "Code") and intend that
this Agreement along with the Agreement and Plan of Merger shall constitute a
"plan of reorganization" within the meaning of Section 368 of the Code;
WHEREAS, the Parties do not intend for this Agreement to be a binding
obligation of any Party unless and until the provisions of Section 6 are
satisfied or waived by the appropriate party; and
WHEREAS, the Parties desire to set forth in writing the terms and
conditions under which said transaction will be consummated.
NOW, THEREFORE, in consideration of the foregoing and of the
representations, warranties, covenants and agreements set forth herein, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged by the Parties, and in accordance with the applicable
provisions of the Delaware General Corporation Law and the Professional
Association Act, the parties hereby agree as follows:
1. Definitions.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Agreement" has the meaning set forth in the preface above.
"Agreement and Plan of Merger" has the meaning set forth in the first
recital above.
"Applicable Laws" has the meaning set forth in Section 3(r).
"Texas Articles of Merger" has the meaning set forth in Section 2(a)
below.
"Texas Professional Association Act" means the Professional Association
Act of the State of Texas, as amended.
"Closing Date" has the meaning set forth in Section 2(b) below.
"Closing" has the meaning set forth in Section 2(b) below.
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"Code" has the meaning set forth in the recitals above.
"Conversion Ratio" has the meaning set forth in Section 2(d)(v) below.
"Delaware Certificate of Merger" shall have the meaning set forth in
Section 2(a) below.
"Delaware General Corporation Law" means the General Corporation Law of
the State of Delaware, as amended.
"Disclosure Schedule" has the meaning set forth in Section 3 below.
"NCS&A" has the meaning set forth in the preface above.
"NCS&A Share" means any share of the issued and outstanding common
stock of NCS&A at the date of this Agreement.
"NCS&A Stockholders" has the meaning set forth in the preface above.
"Effective Time" has the meaning set forth in Section 2(d)(i) below.
"Employee Benefit Plans" has the meaning set forth in Section 3(p)(i)
below.
"Environmental Laws" means all federal, state, and local laws, rules,
regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and
charges thereunder and other governmental requirements relating to pollution,
control of chemicals, storage and handling of petroleum products, management of
waste (including biohazardous or biomedical waste), discharges of materials into
the environment, health, safety, natural resources, and the environment,
including laws relating to emissions, discharges, releases, or threatened
releases of pollutants, contaminants, or chemical, industrial, hazardous, or
toxic materials or wastes into ambient air, surface water, ground water, or
lands or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling of pollutants,
contaminants, or chemical, industrial, hazardous, or toxic materials or wastes.
"ERISA" has the meaning set forth in Section 3(p)(i) below.
"Excluded Assets" has the meaning set forth in Section 5(m) below.
"GAAP" means United States generally accepted accounting principles as
in effect from time to time.
"Hazardous Materials" has the meaning set forth in Section 3(t) below.
"IRS" means the Internal Revenue Service.
"Knowledge" means actual knowledge after reasonable investigation.
"Medical Waste" includes, but is not limited to, pathological waste,
blood, sharp, wastes from surgery or autopsy, dialysis waste, including
contaminated disposable equipment and supplies, cultures and stocks of
infectious agents and associated biological agents, contaminated animals,
isolation wastes, contaminated equipment, laboratory waste, various other
biological waste and discarded materials contaminated with or exposed to blood,
excretion or secretion from human beings or animals, and any substance,
pollutant, material or contaminant listed or regulated under the Medical Waste
Tracking Act of 1988, 42 U.S.C. ss.ss. 6992, et seq.
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"Medical Waste Law" means the Medical Waste Tracking Act of 1988, as
amended, the U.S. Public Vessel Medical Waste Anti-Dumping Act of 1988, 33
U.S.C.A. ss.ss. 2501, et seq., the Marine Protection, Research and Sanctuaries
Act of 1972, 33 U.S.C.A. ss.ss. 1401, et seq., the Occupational Safety and
Health Act, 29 U.S.C.A. ss.ss. 651, et seq., the United States Department of
Health and Human Services, National Institute for Occupational Self-Safety and
Health Infectious Waste Disposal Guidelines, Publication No. 88-119, all
regulations and orders issued pursuant to any of the foregoing, and any other
federal, state, regional, county, municipal or other local laws, regulations and
ordinances insofar as they purport to regulate Medical Waste or impose
requirements relating to Medical Waste.
"Merger" has the meaning set forth in Section 2(a) below.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice.
"Parties" has the meaning set forth in the preface above.
"PBGC" has the meaning set forth in Section 3(p)(ii) below.
"PCBs" has the meaning set forth in Section 3(t) below.
"Person" means an individual, a partnership, a limited liability
company, a corporation, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization, or a governmental entity (or any
department, agency, or political subdivision thereof).
"Practice Assets" has the meaning set forth in Section 3(l) below.
"SCN Share" means any share of the common stock, $.001 par value per
share, of SCN.
"SCN" has the meaning set forth in the preface above.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance,
charge or other security interest other than (a) mechanic's, materialmen's, and
similar liens, (b) liens for taxes not yet due and payable or for taxes that the
taxpayer is contesting in good faith through appropriate proceedings, (c)
purchase money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.
"Service Agreement" shall mean that certain Service Agreement dated as
of the Closing Date by and among SCN, Associated Orthopaedics & Sports Medicine,
P.A., Alexander I. Glogau, M.D., and the NCS&A Stockholder to be executed and
delivered at the Closing.
"Subsidiary" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) owns a majority of the common stock or has the
power to vote or direct the voting of sufficient securities to elect a majority
of the directors.
"Surviving Corporation" has the meaning set forth in Section 2(a)
below.
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2. Basic Transaction.
(a) The Merger. On and subject to the terms and conditions of this
Agreement, NCS&A will merge with and into SCN (the "Merger") at the Effective
Time. SCN shall enter into the Agreement and Plan of Merger upon adoption of the
Agreement and Plan of Merger by the Board of Directors of SCN and the
satisfaction or waiver of the conditions precedent to SCN's obligations set
forth in this Agreement. NCS&A shall enter into the Agreement and Plan of Merger
upon adoption of the Agreement and Plan of Merger by the Board of Directors of
NCS&A and the NCS&A Stockholder and the satisfaction or waiver of the conditions
precedent to NCS&A's obligation set forth in this Agreement. Upon all other
conditions herein being satisfied or waived in accordance with the terms of this
Agreement, a Certificate of Merger in substantially the form attached hereto as
Exhibit 2(a)(1) (the "Delaware Certificate of Merger") shall be executed and
filed with the Secretary of State of the State of Delaware and Articles of
Merger in substantially the form attached hereto as Exhibit 2(a)(2) (the "Texas
Articles of Merger")shall be executed and filed with the Secretary of State of
the State of Texas, together with all certificates or documents as may be
required to be filed under the laws of the State of Delaware and the State of
Texas to effect the Merger. Thereafter, the separate corporate existence of
NCS&A shall cease and NCS&A shall be merged with and into SCN (the "Surviving
Corporation").
(b) The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of NCS&A, 4031 West
Plano Parkway, Plano, Texas 75093 commencing at 9:00 A.M. local time on the
second business day following the day on which the last of the conditions set
forth in Section 6 have been fulfilled or waived, or such other date or place as
the Parties may mutually determine (the "Closing Date"). Time is of the essence
for this Agreement.
(c) Actions at the Closing. At the Closing, (i) NCS&A will deliver to
SCN the various certificates, instruments, and documents referred to in Section
7(a) below, (ii) SCN will deliver to NCS&A the various certificates,
instruments, and documents referred to in Section 7(b) below, (iii) SCN and
NCS&A will file with the Secretary of State of the State of Delaware the
Delaware Certificate of Merger, and (iv) SCN and NCS&A will file with the
Secretary of State of the State of Texas the Texas Articles of Merger.
(d) Effect of Merger.
(i) General. The Merger shall become effective at the time
(the "Effective Time") SCN and NCS&A file the Delaware Certificate of
Merger with the Secretary of State of the State of Delaware and file
the Texas Articles of Merger with the Secretary of State of the State
of Texas. The Merger shall have the effect set forth in the Delaware
General Corporation Law and the Texas Professional Association Act. The
Surviving Corporation may, at any time after the Effective Time, take
any action (including executing and delivering any document) in the
name and on behalf of either SCN or NCS&A in order to carry out and
effectuate the transactions contemplated by this Agreement.
(ii) Certificate of Incorporation. The Certificate of
Incorporation of SCN in effect at and as of the Effective Time will
remain the Certificate of Incorporation of the Surviving Corporation
without any modification or amendment as a result of the Merger.
(iii) Bylaws. The Bylaws of SCN in effect at and as of the
Effective Time will remain the Bylaws of the Surviving Corporation
without any modification or amendment as a result of the Merger.
(iv) Directors and Officers. The directors and officers of SCN
in office at and as of the Effective Time will remain the directors and
officers of the Surviving Corporation (retaining their respective
positions and terms of office).
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(v) Conversion of NCS&A Shares. At and as of the Effective
Time, each of the issued and outstanding NCS&A Shares shall be
converted into (A) the right to receive 45.39 SCN Shares (the ratio of
90,780 SCN Shares divided by the total number of NCS&A Shares
outstanding is referred to herein as the "Conversion Ratio") and (B)
the right to receive a cash payment of $201.56. The NCS&A Stockholder
shall deliver to SCN a schedule executed by each NCS&A Stockholder
setting forth the allocation of SCN Shares and cash to be delivered to
each of the NCS&A Stockholder at the Effective Time. The Conversion
Ratio shall be subject to equitable adjustment in the event of any
stock split, stock dividend, reverse stock split, or other change in
the number of NCS&A Shares or SCN Shares outstanding.
(vi) SCN Shares. Each SCN Share issued and outstanding at and
as of the Effective Time will remain issued and outstanding and shall
be unaffected by the Merger.
(e) No Fractional Shares. No fractional SCN Shares shall be issued
pursuant to the Merger. In lieu of the issuance of any such fractional SCN
Shares, cash adjustments will be paid to holders in respect of any fractional
SCN Shares that would otherwise be issuable. The amount of such adjustment shall
be the product of such fraction of a SCN Share multiplied by $11.75.
3. Representations and Warranties of NCS&A and NCS&A Stockholder. NCS&A
and the NCS&A Stockholder, jointly and severally, represent and warrant to SCN
that the statements contained in this Section 3 are correct and complete as of
the date of this Agreement and will be correct and complete as of the Closing
Date (as though made then and as though the Closing Date were substituted for
the date of this Agreement throughout this Section 3), except as set forth in
the disclosure schedule (the "Disclosure Schedule"). The Disclosure Schedule
will be arranged in paragraphs corresponding to the lettered and numbered
paragraphs contained in this Section 3.
(a) Organization, Qualification, and Corporate Power. NCS&A is a
professional association duly organized, validly existing, and in good standing
under the laws of the State of Texas. NCS&A is duly authorized to conduct
business and is in good standing under the laws of each jurisdiction in which
the character or location of the properties owned or the business conducted by
NCS&A makes such qualification necessary. NCS&A has the full corporate power and
authority to carry on the business in which it is engaged and to own and use the
properties owned and used by it.
(b) NCS&A Stockholder Interests and Capitalization. The capital stock
of NCS&A is owned in the manner set forth in Section 3(b) of the Disclosure
Schedule. All of the issued and outstanding NCS&A Shares have been duly
authorized and are validly issued, fully paid, and nonassessable. There are no
outstanding or authorized options, warrants, purchase rights, subscription
rights, conversion rights, exchange rights or other contracts or commitments
that could require NCS&A to issue, sell or otherwise cause to become outstanding
any of its capital stock. There are no outstanding or authorized stock
appreciation, phantom stock, profit participation, or similar rights with
respect to NCS&A. As of the date of this Agreement, the authorized capital stock
of NCS&A consists of 100,000 shares of NCS&A common stock, of which 2,000 shares
were issued and outstanding.
(c) Authorization of Transaction. NCS&A has the full corporate power
and authority to execute and deliver this Agreement and to perform its
obligations hereunder. This Agreement constitutes the valid and legally binding
obligation of NCS&A and the NCS&A Stockholder, enforceable in accordance with
its terms and conditions.
(d) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge or other restriction of any government,
governmental agency, professional regulatory organization or court to which
NCS&A is subject or any provision of the charter or bylaws of NCS&A or (ii)
conflict with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, modify,
or cancel, or require any notice under any agreement, contract, lease, license,
instrument
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or other arrangement to which NCS&A is a party or by which it is bound or to
which any of its assets is subject (or result in the imposition of any Security
Interest upon any of its assets). NCS&A is not required to give any notice to,
make any filing with, or obtain any authorization, consent, or approval of any
government or governmental agency in order for the Parties to consummate the
transactions contemplated by this Agreement.
(e) Subsidiaries and Investments. NCS&A does not own, directly or
indirectly, any capital stock or other equity ownership or proprietary interest
in any other corporation, partnership, association, limited liability company,
trust, joint venture or other entity.
(f) Financial Statements. NCS&A has furnished SCN with unaudited
balance sheets dated December 31, 1995 and 1996 and May 31, 1997 and unaudited
income statements for the twelve (12) month periods ending December 31, 1996,
1995 and 1994 and the five (5) months ended May 31, 1997. Such financial
statements, including the notes thereto, except as indicated therein, were
prepared on a basis consistent with past accounting practices of NCS&A and
fairly present the results of operations for the periods noted therein. The
balance sheets of NCS&A delivered by NCS&A to SCN fairly present the financial
condition of NCS&A at the date thereof, and except as indicated therein, reflect
all claims against and all debts and liabilities of NCS&A, fixed or contingent,
as of the date thereof.
(g) Undisclosed Liabilities. NCS&A has no uninsured liability (whether
known or unknown, asserted or unasserted, absolute or contingent, accrued or
unaccrued, liquidated or unliquidated, and whether due or to become due),
including any liability for taxes, except for (i) liabilities set forth on the
face of the balance sheet dated as of December 31, 1996 and (ii) liabilities
which have arisen after December 31, 1996 in the Ordinary Course of Business
(none of which results from, arises out of, relates to, is in the nature of, or
was caused by any breach of contract, breach of warranty, tort, infringement, or
violation of law).
(h) Brokers' Fees. NCS&A does not have any liability or obligation to
pay any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement.
(i) Material Contracts. Section 3(i) of the Disclosure Schedule lists
the following contracts and other material agreements to which NCS&A is a party:
(i) any agreement (or group of related agreements) for the
lease of real or personal property to or from any Person;
(ii) any agreement (or group of related agreements) for the
purchase or sale of supplies, products, or other personal property or
for the furnishing or receipt of services;
(iii) any agreement concerning a partnership, limited
liability company or joint venture;
(iv) any agreement (or group of related agreements) under
which NCS&A has created, incurred, assumed, or guaranteed any
indebtedness for borrowed money, or any capitalized lease obligation
pursuant to which it has imposed a Security Interest in respect of any
of its assets, tangible or intangible;
(v) any agreement concerning confidentiality or
noncompetition;
(vi) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other plan or
arrangement for the benefit of NCS&A's current or former directors,
officers, and employees;
(vii) any agreement for the employment of any individual on a
full-time, part-time, consulting, or other basis providing annual
compensation in excess of $25,000 or providing severance benefits;
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(viii) any agreement pursuant to which NCS&A has advanced or
loaned any amount to any of its directors, officers, and employees;
(ix) any agreement pursuant to which the consequences of a
default or termination could have a material adverse effect on the
business, financial condition, operations, results of operations, or
future prospects of NCS&A;
(x) any third-party provider agreement; or
(xi) any other agreement (or group of related agreements)
outside the ordinary course of NCS&A's business or operations the
performance of which involves consideration in excess of $15,000.
NCS&A has delivered or given SCN access to a correct and complete copy of each
written agreement listed in Section 3(i) of the Disclosure Schedule (as amended
through the Closing Date) and a written summary setting forth the terms and
conditions of each oral agreement referred to in Section 3(i) of the Disclosure
Schedule. With respect to each such agreement: (A) the agreement is legal,
valid, binding, enforceable, and in full force and effect; (B) except as set
forth in Section 3(i) of the Disclosure Schedule, no notice of this Agreement or
consent of any third party is required in order for NCS&A to execute and deliver
this Agreement or to consummate the transactions contemplated hereby, and, after
assignment to SCN at Closing, the agreement will continue to be legal, valid,
binding, enforceable, and in full force and effect on identical terms; (C) no
party is in breach or default, and no event has occurred which with notice or
lapse of time would constitute a breach or default, or permit termination,
modification, or acceleration, under the agreement; and (D) no party has
repudiated any provision of the agreement.
(j) Insurance; Malpractice. Section 3(j) of the Disclosure Schedule
contains a list and brief description of all policies or binders of fire,
liability, product liability, workers compensation, health and other forms of
insurance policies or binders currently in force insuring against risks which
will remain in full force and effect at least through the Closing Date. Section
3(j) of the Disclosure Schedule contains a description of all current
malpractice liability insurance policies of NCS&A Stockholder, NCS&A and NCS&A's
professional employees and all predecessor policies in effect since February 1,
1990. Neither NCS&A, the NCS&A Stockholder, nor NCS&A's professional employees
have, in the last seven (7) years, filed a written application for any insurance
coverage relating to NCS&A's business or property which has been denied by an
insurance agency or carrier. NCS&A, NCS&A's professional employees and the NCS&A
Stockholder have been continuously insured for professional malpractice claims
during the same period. Section 3(j) of the Disclosure Schedule also sets forth
a list of all claims for any insured loss in excess of Five Thousand Dollars
($5,000.00) per occurrence filed by or against NCS&A, NCS&A's professional
employees or the NCS&A Stockholder during the three (3) year period immediately
preceding the date hereof, including workers compensation, general liability,
environmental liability and professional malpractice liability claims. None of
NCS&A, NCS&A's professional employees or the NCS&A Stockholder is in material
default with respect to any provision contained in any such policy and none of
them has failed to give any notice or present any claim under any such policy in
due and timely fashion.
(k) No Changes Prior to Closing Date. During the period from December
31, 1996 through the date hereof, NCS&A has not (i) incurred any liability or
obligation of any nature (whether known or unknown, asserted or unasserted,
absolute or contingent, accrued or unaccrued, liquidated or unliquidated and
whether due or to become due), except in the Ordinary Course of Business, (ii)
written off as uncollectible any notes or accounts receivable, except write-offs
in the Ordinary Course of Business charged to applicable reserves, none of which
individually or in the aggregate is material to NCS&A, (iii) conducted its
business in such a manner so as to materially increase its accounts payable or
so as to materially decrease its accounts receivable, (iv) granted any increase
in the rate of wages, salaries, bonuses, or other remunerations of any employee,
except in the Ordinary Course of Business, (v) canceled or waived any claims or
rights of substantial value, (vi) made any change in any method of accounting,
(vii) otherwise conducted its business or entered into any transaction, except
in the usual and ordinary manner and in the Ordinary Course of
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Business, (viii) agreed, whether or not in writing, to do any of the foregoing,
or (ix) disposed of its assets other than in the Ordinary Course of Business.
(l) Title; Condition. Section 3(l) of the Disclosure Schedule contains
a complete, true and correct list of those assets which are material to the
business or operations of NCS&A (the "Practice Assets"). NCS&A has good and
marketable title to all of the Practice Assets subject to no mortgage, pledge,
lien, lease, conditional sales agreement, option, right of first refusal or any
other encumbrance or charge, including taxes. NCS&A agrees to remove all
security interests reflected on any search of public records, if any, prior to
the Effective Time and remove any other security interest filed with respect to
the Practice Assets between the date of such search of public records and the
Effective Time.
(m) Litigation. There is no suit, action, proceeding at law or in
equity, arbitration, administrative proceeding or other proceeding or
investigation by any governmental entity pending, or threatened against, or
affecting NCS&A or any of the Practice Assets, or any physician or other health
care professional engaged or employed by NCS&A, and there is no basis for any of
the foregoing. None of the actions, suits, proceedings, hearings, and
investigations set forth in Section 3(m) of the Disclosure Schedule could result
in any material adverse change in the operations, results of operations, or
future prospects of the business assets to be operated by SCN after the Closing.
(n) Permits and Licenses. NCS&A and all physicians and other health
care professionals engaged or employed by NCS&A have all permits and licenses
required by all applicable laws; have made all regulatory filings necessary for
the conduct of NCS&A's business; and are not in violation of any of said
permitting or licensing requirements.
(o) Tax Matters. All federal, state and other tax returns of NCS&A
required by law to be filed have been timely filed, and NCS&A has paid or
adequately provided for all taxes (including taxes on properties, income,
franchises, licenses, sales and payrolls) which have become due pursuant to such
returns or pursuant to any assessment, except for any taxes and assessments, the
amount, applicability or validity of which is currently being contested in good
faith by appropriate proceedings and with respect to which NCS&A has set aside
on its books adequate reserves. There are no tax liens on any of NCS&A's assets
except those with respect to taxes not yet due and payable. There are no pending
tax examinations of NCS&A's tax returns nor has NCS&A received a revenue agent's
report asserting a tax deficiency in the last twelve (12) months. There are not
and will not be at the Closing Date, any claims pending or asserted against
NCS&A for unpaid taxes by any federal, state or other governmental body. NCS&A
has withheld from each payment made to employees of NCS&A the amount of all
taxes (including, but not limited to, federal, state and local income taxes and
Federal Insurance Contribution Act taxes) required to be withheld therefrom and
all amounts customarily withheld therefrom, and has set aside all other employee
contributions or payments customarily set aside with respect to such wages and
has paid or will pay the same to, or has deposited or will deposit such payment
with, the proper tax receiving officers or other appropriate authorities.
(p) Employee Benefit Plans.
(i) List of Plans. Section 3(p) of the Disclosure Schedule
contains an accurate and complete list of all employee benefit plans
("Employee Benefit Plans") within the meaning of Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
whether or not any Employee Benefit Plans are otherwise exempt from the
provisions of ERISA, established, maintained or contributed to by NCS&A
(including all employers (whether or not incorporated) which by reason
of common control are treated together with NCS&A and/or the NCS&A
Stockholder as a single employer within the meaning of Section 414 of
the Code) since September 2, 1974.
(ii) Status of Plans. NCS&A has never maintained and does not
now maintain or contribute to any Employee Benefit Plan subject to
ERISA which is not in substantial compliance with ERISA, or which has
incurred any accumulated funding deficiency within the meaning of
Section 412 or
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418B of the Code, or which has applied for or obtained a waiver from
the Internal Revenue Service of any minimum funding requirement under
Section 412 of the Code or which is subject to Title IV of ERISA. NCS&A
has not incurred any liability to the Pension Benefit Guaranty
Corporation ("PBGC") in connection with any Employee Benefit Plan
covering any employees of NCS&A or ceased operations at any facility or
withdrawn from any such Plan in a manner which could subject it to
liability under Section 4062(f), 4063 or 4064 of ERISA, and knows of no
facts or circumstances which might give rise to any liability of NCS&A
to the PBGC under Title IV of ERISA which could reasonably be
anticipated to result in any claims being made against NCS&A by the
PBGC. NCS&A has not incurred any withdrawal liability (including any
contingent or secondary withdrawal liability) within the meaning of
Sections 4201 and 4202 of ERISA, to any Employee Benefit Plan which is
a Multiemployer Plan (as defined in Section 4001 of ERISA), and no
event has occurred, and there exists no condition or set of
circumstances, which represent a material risk of the occurrence of any
withdrawal from or the partition, termination, reorganization or
insolvency of any Multiemployer Plan which would result in any
liability of NCS&A.
(iii) Contributions. Full payment has been made of all amounts
which NCS&A is required, under applicable law or under any Employee
Benefit Plan or any agreement relating to any Employee Benefit Plan to
which NCS&A is a party, to have paid as contributions thereto as of the
last day of the most recent plan year of such Employee Benefit Plan
ended prior to the date hereof. NCS&A has made adequate provision for
reserves to meet contributions that have not been made because they are
not yet due under the terms of any Employee Benefit Plan or related
agreements. Benefits under all Employee Benefit Plans are as
represented and have not been increased subsequent to the date as of
which documents have been provided.
(iv) Tax Qualification. Each Employee Benefit Plan intended to
be qualified under Section 401(a) of the Code has been determined to be
so qualified by the Internal Revenue Service and nothing has occurred
since the date of the last such determination which resulted or is
likely to result in the revocation of such determination.
(v) Transactions. NCS&A has not engaged in any transaction
with respect to the Employee Benefit Plans which would subject it to a
material tax, penalty or liability for prohibited transactions under
ERISA or the Code nor have any of its directors, officers or employees
to the extent they or any of them are fiduciaries with respect to such
plans, breached any of their responsibilities or obligations imposed
upon fiduciaries under Title I of ERISA which would result in any
material claim being made under or by or on behalf of any such plans by
any party with standing to make such claim.
(vi) Other Plans. NCS&A presently does not maintain any
Employee Benefit Plans or any other foreign pension, welfare or
retirement benefit plans other than those listed on Section 3(p) of the
Disclosure Schedule.
(vii) Documents. NCS&A has delivered or caused to be delivered
to SCN true and complete copies of (i) all Employee Benefit Plans as in
effect, together with all amendments thereto which will become
effective at a later date, as well as the latest IRS determination
letter obtained with respect to any such Employee Benefit Plan
qualified under Section 401 or 501 of the Code, and (ii) the most
recently filed Form 5500 for each Employee Benefit Plan required to
file such form.
(q) Third-Party Relations. NCS&A has not received any notice that any
material patient, supplier, employee or associated physician intends to cease
doing business with NCS&A.
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(r) Compliance with Applicable Laws. NCS&A has operated in compliance
with all federal, state, county and municipal laws, constitutions, ordinances,
statutes, rules, regulations and orders applicable thereto ("Applicable Laws").
No item disclosed in Section 3(r) of the Disclosure Schedule could have a
material effect on SCN. Neither NCS&A nor any physician associated with or
employed by NCS&A has received payment or any remuneration whatsoever to induce
or encourage the referral of patients or the purchase of goods and/or services
as prohibited under 42 U.S.C. ss. 1320a-7b(b), or otherwise perpetrated any
Medicare or Medicaid fraud or abuse nor has any fraud or abuse been alleged
within the last five (5) years by any government agency.
(s) Employee Compensation. NCS&A has paid or discharged or will pay or
discharge or assume all liabilities for compensation and benefits to which all
employees, including physician employees, are entitled through the Closing Date,
including but not limited to all salaries, wages, bonuses, incentive
compensation, payroll taxes, hospitalization and medical expenses, deferred
compensation, and vacation and sick pay, as well as any severance pay becoming
due as a result of the termination of NCS&A's employees.
(t) Environmental Matters.
(i) NCS&A is in full compliance with all applicable
Environmental Laws.
(ii) NCS&A has not authorized or conducted the disposal or
release, or other handling of any hazardous substance, Medical Waste,
hazardous waste, hazardous material, hazardous constituent, toxic
substance, pollutant, contaminant, asbestos, radon, polychlorinated
biphenyls ("PCBs"), petroleum product or waste (including crude oil or
any fraction thereof), natural gas, liquefied gas, synthetic gas,
biohazardous or biomedical material, or other material defined,
regulated controlled or potentially subject to any remediation
requirement under any Environmental Law (collectively "Hazardous
Materials"), on, in, under or affecting any property owned or leased by
NCS&A.
(iii) NCS&A has, and is in compliance with, all licenses,
permits, registrations, and government authorizations necessary to
operate under all applicable Environmental Laws. Section 3(t) of the
Disclosure Schedule lists all such licenses, permits, registrations and
government authorizations required by any Environmental Law.
(iv) NCS&A has not received any written or oral notice from
any governmental agency or entity or any other Person and there is no
pending or threatened claim, litigation or any administrative agency
proceeding that: (a) alleges a violation of any Environmental Law(s) by
NCS&A or, with respect to the Practice Assets or any property owned or
leased by NCS&A (b) alleges that NCS&A is a liable party or potentially
responsible party under the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. ss. 9601, et seq., or any
analogous state law, (c) has resulted or could result in the attachment
of an environmental lien on any of the Practice Assets or property
owned or leased by NCS&A, or (d) alleges that NCS&A is liable for any
contamination of the environment, contamination of any property owned
or leased by NCS&A, damage to natural resources, property damage, or
personal injury based on its activities or the activities of any
predecessor or third parties involving Hazardous Materials, whether
arising under the Environmental Laws, common law principles, or other
legal standards.
(v) With respect to the generation, transportation, treatment,
storage and disposal or other handling of Medical Waste, NCS&A has
complied with all Medical Waste Laws.
(u) Healthcare Compliance. NCS&A is participating in or otherwise
authorized to receive reimbursement from Medicare and Medicaid and is a party to
other third-party payor agreements if any, discussed in Section 3(i) of the
Disclosure Schedule. All necessary certifications and contracts required for
participation in such programs are in full force and effect and have not been
amended or otherwise modified, rescinded, revoked or assigned, and no condition
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exists or event has occurred which in itself or with the giving of notice or the
lapse of time or both would result in the suspension, revocation, impairment,
forfeiture or non-renewal of any such third-party payor program. NCS&A is in
compliance in all material respects with the requirements of all such
third-party payors. NCS&A, the NCS&A Stockholder, and NCS&A's physician
employees do not have any financial relationship (whether investment interest,
compensation interest, or otherwise) with any entity to which any of the
foregoing refer patients, except for such financial relationships that qualify
for exceptions to state and federal laws restricting physician referrals to
entities in which they have a financial interest.
(v) Fraud and Abuse. NCS&A, the NCS&A Stockholder and persons and
entities providing professional services for NCS&A have not engaged in any
activities which are prohibited under 42 U.S.C. ss. 1320a-7b, or the regulations
promulgated thereunder pursuant to such statutes, or related state or local
statutes or regulations, or which are prohibited by rules of professional
conduct, including the following: (a) knowingly and willfully making or causing
to be made a false statement or representation of a material fact in any
application for any benefit or payment; (b) knowingly and willfully making or
causing to be made any false statement or representation of a material fact for
use in determining rights to any benefit or payment; (c) failing to disclose
knowledge by a claimant of the occurrence of any event affecting the initial or
continued right to any benefit or payment on its own behalf or on behalf of
another, with intent to fraudulently secure such benefit or payment; or (d)
knowingly and willfully soliciting or receiving any remuneration (including any
kickback, bribe, or rebate), directly or indirectly, overtly or covertly, in
cash or in kind or offering to pay or receive such remuneration (1) in return
for referring an individual to a person for the furnishing or arranging for the
furnishing or any item or service for which payment may be made in whole or in
part by Medicare or Medicaid, or (2) in return for purchasing, leasing, or
ordering or arranging for or recommending purchasing, leasing, or ordering any
good, facility, service or item for which payment may be made in whole or in
part by Medicare or Medicaid.
(w) Practice Compliance. NCS&A is duly licensed as a medical practice
and is lawfully operated in accordance with the requirements of all Applicable
Laws and has all necessary authorizations for the use and operation of a medical
practice, all of which are in full force and effect. There are no outstanding
notices of deficiencies relating to NCS&A issued by any governmental authority
or third-party payor requiring conformity or compliance with any applicable law
or condition for participation with such governmental authority or third-party
payor, and after reasonable and independent inquiry and due diligence and
investigation, NCS&A has neither received notice nor has any Knowledge or reason
to believe that such necessary authorizations may be revoked or not renewed in
the Ordinary Course of Business.
(x) Rates and Reimbursement Policies. The jurisdiction in which NCS&A
is located does not currently impose any restrictions or limitations on rates
which may be charged to private pay patients receiving services provided by
NCS&A. NCS&A does not have any rate appeal currently pending before any
governmental authority or any administrator of any third-party payor program. No
Applicable Law which affects rates or reimbursement procedures has been enacted,
promulgated or issued within the eighteen (18) months preceding the date of this
Agreement and no such legal requirement is proposed or currently pending in the
jurisdiction in which NCS&A is located, which could have a material adverse
effect on NCS&A or may result in the imposition of additional Medicaid,
Medicare, charity, free care, welfare, or other discounted or government
assisted patients at NCS&A or require NCS&A to obtain any necessary
authorization which NCS&A does not currently possess.
(y) Accounts Receivable. All accounts receivable, unbilled invoices and
other debts due or recorded in the respective records and books of account of
NCS&A, as being due to NCS&A, (i) are valid, existing and are collectible within
one hundred eighty (180) days following the date of this Agreement without
resort to legal proceedings or use of collection agencies, (ii) have arisen in
the Ordinary Course of Business, and (iii) none of such accounts receivable or
other debts is or will at the Closing Date be subject to any counterclaim or
set-off except to the extent of any such provision or reserve. There has been no
material adverse change since May 31, 1997, in the amount of accounts
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receivable or other debts due NCS&A, the allowances with respect thereto, or
accounts payable of NCS&A from that reflected in the most recent balance sheet
previously delivered by NCS&A to SCN.
(z) Guaranties. NCS&A is not a guarantor and otherwise is not liable
for any liability or obligation (including indebtedness) of any other Person.
(aa) Powers of Attorney. There are no outstanding powers of attorney
executed by NCS&A, except as may be contained in financing documents or security
agreements listed in Section 3(i) of the Disclosure Schedule.
(bb) Tangible Assets. NCS&A owns or leases all land, buildings,
machinery, equipment, and other tangible assets necessary for the conduct of its
business as presently conducted. Each tangible asset is free from defects, has
been maintained in accordance with normal industry practice, and is in good
operating condition and repair (subject to normal wear and tear).
(cc) SCN Share Ownership; Investment Intent.
(i) Neither NCS&A nor the NCS&A Stockholder owns,
beneficially or otherwise, any SCN Shares.
(ii) SCN Shares issuable in the Merger are being acquired by
the NCS&A Stockholder solely for his own account for investment and not
with a view to the distribution thereof, and the NCS&A Stockholder
acknowledges and understands that the certificate(s) representing such
SCN Shares will bear a legend in substantially the following form:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR UNDER ANY STATE SECURITIES ACT AND CANNOT BE SOLD,
TRANSFERRED, OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER
SUCH ACTS OR UNLESS EXEMPTIONS FROM REGISTRATION ARE
AVAILABLE.
(iii) The NCS&A Stockholder represents and warrants as
follows:
(A) Each NCS&A Stockholder is an "accredited
investor" as defined under Rule 501 of Regulation D
promulgated under the Securities Act.
(B) The NCS&A Stockholder confirms that SCN has made
available to them or to their representatives the opportunity
to ask questions of SCN officers and directors and to acquire
such information about the SCN Shares and the business and
financial condition of SCN as the NCS&A Stockholder requested,
which additional information has been received.
(C) In deciding to acquire SCN Shares pursuant to
this Agreement, the NCS&A Stockholder consulted with his
legal, financial, and tax advisors with respect to the Merger
and the nature of the investment together with any additional
information provided under subsection (B) above.
(D) Each NCS&A Stockholder has adequate means of
providing for his current needs and personal contingencies and
has no need for liquidity in his investment in SCN. Each NCS&A
Stockholder, either alone or with his representatives, has
such knowledge and experience in financial and business
matters that they are capable of evaluating the merits and
risks of the Merger.
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(E) The NCS&A Stockholder understands and
acknowledges that the investment in the SCN Shares is a
speculative investment which involves a high degree risk of
loss of such NCS&A Stockholders' investment therein; that
there are substantial restrictions on the transferability of
the SCN Shares under the applicable provisions of the
Securities Act and the rules and regulations promulgated
thereunder and applicable state securities or "blue sky" laws;
and, accordingly, that it may not be possible to liquidate an
investment in the SCN Shares.
(F) The NCS&A Stockholder has been advised and
understands that (i) the offer and sale of the SCN Shares have
not been registered under the Securities Act; (ii) the SCN
Shares must held indefinitely and the NCS&A Stockholder must
continue to bear the economic risk of the investment in the
SCN Shares until the offer or sale of the SCN Shares is
subsequently registered under the Securities Act or any "blue
sky" laws or an exemption from such registration is available;
(iii) Rule 144 promulgated under the Securities Act is not
presently available with respect to the sale of any securities
of SCN, including the SCN Shares, and when and if the SCN
Shares may be disposed of without registration in reliance on
Rule 144, such disposition can be made only in accordance with
the terms and conditions of such Rule; (iv) the restrictive
legends described in Section 3(ac)(ii) shall be placed on the
certificates representing the SCN Shares; and (v) a notation
shall be made in the appropriate records of SCN indicating
that the SCN Shares are subject to restrictions on transfer
and appropriate stop-transfer instructions will be issued to
any transfer agent with respect to the SCN Shares.
(dd) Full Disclosure. No representation or warranty made by NCS&A in
this Agreement contains or will contain any untrue statement of a material fact
or omits or will omit to state a material fact necessary to make the statements
contained herein or therein not materially misleading.
4. Representations and Warranties of SCN. SCN represents and warrants
to NCS&A that the statements contained in this Section 4 are correct and
complete as of the date of this Agreement and will be correct and complete as of
the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Section 4).
(a) Organization. SCN is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Delaware.
(b) Capitalization. As of the date of this Agreement, the entire
authorized capital stock of SCN consists of 50,000,000 SCN Shares, of which
14,662,575 SCN Shares are issued and outstanding and 2,000,000 shares of
preferred stock, none of which are issued and outstanding. All of the SCN Shares
to be issued in the Merger have been duly authorized and, upon consummation of
the Merger, will be validly issued, fully paid, and nonassessable.
(c) Authorization of Transaction. SCN has full power and authority
(including full corporate power and authority) to execute and deliver this
Agreement, to issue the SCN Shares and otherwise to perform its obligations
hereunder; provided, however, that SCN cannot consummate the transaction unless
and until the Merger receives the approval of the SCN Board of Directors. Except
as set forth in the preceding sentence, this Agreement constitutes the valid and
legally binding obligation of SCN, enforceable in accordance with its terms and
conditions.
(d) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge or other restriction of any government,
governmental agency, professional regulatory organization or court to which SCN
is subject or may become subject as a result of the transaction contemplated by
this Agreement, or any provision of the charter or bylaws of SCN or (ii)
conflict with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, modify,
or cancel, or
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require any notice under any agreement, contract, lease, license, instrument or
other arrangement to which SCN is a party or by which it is bound or to which
any of its assets is subject. Other than state and federal filings required by
the Securities Act and similar state statutes, SCN does not need to give any
notice to, make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order for the Parties to
consummate the transactions contemplated by this Agreement.
(e) Brokers' Fees. SCN does not have any liability or obligation to pay
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which SCN could become liable or
obligated.
(f) Securities Filings. All reports and statements filed with respect
to SCN pursuant to the Securities Act or the Securities Exchange Act conform to
the requirements of the Securities Act and the Securities Exchange Act and the
rules and regulations promulgated thereunder and did not include at the time of
filing such document any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading.
5. Covenants. The Parties agree as follows with respect to the period
from and after the execution of this Agreement.
(a) General. Each of the Parties will use its or his best efforts to
take all action and to do all things necessary in order to consummate and make
effective the transactions contemplated by this Agreement (including
satisfaction of the closing conditions set forth in Section 6 below) to be
satisfied by him or it. This paragraph shall not be construed to obligate any of
the Parties to waive any condition precedent to his or its obligations to
perform hereunder.
(b) Notices and Consents. NCS&A will give any notices to third parties,
and will use its best efforts to obtain any third party consents necessary or
required to consummate the Merger or that SCN reasonably may request in
connection with the matters referred to in Section 3(i) above.
(c) Regulatory Matters and Approvals. Each of the Parties will give any
notices to, make any filings with, and use its reasonable best efforts to obtain
any necessary authorizations, consents, and approvals of governments and
governmental agencies in connection with the transactions contemplated by this
Agreement. Without limiting the generality of the foregoing:
(i) Tax Reporting. The Merger is intended to qualify as a
reorganization under Code Section 368(a)(1)(A). Each of the parties
agrees to report this transaction for all purposes in accordance with
the foregoing.
(ii) Licenses and Permits. Each of the Parties shall have
obtained all licenses and permits necessary to operate their respective
businesses.
(d) Operation of Business. From the date of this Agreement through the
Closing Date, NCS&A will not engage in any practice, take any action, or enter
into any transaction outside the Ordinary Course of Business. Without limiting
the generality of the foregoing:
(i) NCS&A will not authorize or effect any change in its
charter documents or bylaws;
(ii) NCS&A will not grant any options, warrants, or other
rights to purchase or obtain any of its capital stock or issue, sell or
otherwise dispose of any of its capital stock (except upon the
conversion or exercise of options, warrants, and other rights currently
outstanding);
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(iii) NCS&A will not declare, set aside, or pay any dividend
or distribution with respect to its capital stock (whether in cash or
in kind), or redeem, repurchase, or otherwise acquire any of its
capital stock in either case outside the Ordinary Course of Business
without the consent of SCN, which consent shall not be unreasonably
withheld;
(iv) NCS&A will not issue any note, bond or other debt
security or create, incur, assume or guarantee any indebtedness for
borrowed money or capitalized lease obligation outside the Ordinary
Course of Business;
(v) NCS&A will not impose any Security Interest upon any of
its assets outside the Ordinary Course of Business;
(vi) NCS&A will not make any capital investment in, make any
loan to, or acquire the securities or assets of any other Person
outside the Ordinary Course of Business;
(vii) NCS&A will not make any change in employment terms for
any of its directors, officers or employees outside the Ordinary Course
of Business; and
(viii) NCS&A will not commit to do any of the foregoing.
(e) Further Acts and Assurances. NCS&A and the NCS&A Stockholder shall,
at any time and from time to time at and after the Effective Time, upon request
of SCN, take any and all steps necessary to place SCN in possession and
operating control of the Practice Assets and to effectuate the Merger, and will
do, execute, acknowledge and deliver, or will cause to be done, executed,
acknowledged and delivered, all such further acts, deeds, assignments,
transfers, conveyances, powers of attorney, and assurances as may be required
for better transferring and confirming to SCN or its successors and assigns, or
for better reducing to possession, any or all of the Practice Assets or
consummating the Merger.
(f) Full Access. Upon three (3) days prior notice, NCS&A will permit
representatives of SCN to have full access to all premises, properties,
personnel, books, records (including tax records), contracts, and documents of
or pertaining to NCS&A during normal business hours. SCN will treat and hold as
such any confidential information it receives from NCS&A in the course of the
reviews contemplated by this Section 5(f), will not use any of the confidential
information except in connection with this Agreement, and, if this Agreement is
terminated for any reason whatsoever, agrees to return to NCS&A all tangible
embodiments (and all copies) thereof which are in its possession.
(g) Notice of Developments. Each Party will give prompt written notice
to the other Parties of any material adverse development causing a breach of any
of its own representations and warranties in Section 3 or Section 4 above, as
applicable. No disclosure by any Party pursuant to this Section 5(g), however,
shall be deemed to amend or supplement the Disclosure Schedule or to prevent or
cure any misrepresentation, breach of warranty, or breach of covenant.
(h) Exclusivity. Until the earlier of (i) July 31, 1997, or (ii) the
Effective Time, NCS&A will not solicit, initiate, or encourage the submission of
any proposal or offer from any Person relating to the acquisition of all or
substantially all of the capital stock or assets of NCS&A (including any
acquisition structured as a merger, consolidation, or share exchange). NCS&A
shall notify SCN immediately if any Person makes any proposal, offer, inquiry,
or contact with respect to any of the foregoing.
(i) Collection of Accounts Receivable. The NCS&A Stockholder agrees to
cooperate with SCN in the collection of accounts receivable owned by NCS&A as of
the Effective Time acquired pursuant to this Agreement. SCN, at its option,
shall have the right to require the collection of said accounts receivable
through a lockbox or bank account sweep arrangement. In connection therewith,
the NCS&A Stockholder agrees to execute the necessary
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<PAGE>
documents and follow the necessary procedures as described in the Service
Agreement to accommodate the collection of the accounts receivable in such
manner.
(j) Payment of Expenses. On or before the Effective Time, NCS&A shall
have paid or discharged any and all liabilities or charges for costs or fees
owed as a result of the transaction contemplated by this Agreement.
(k) Corporate Authorization. By execution of this Agreement, the NCS&A
Stockholder agrees to take any and all steps necessary and will do, execute,
acknowledge and deliver, or will cause to be done, executed, acknowledged and
delivered, all such acts, deeds and assurances required in order to consummate
the Merger, including voting as directors of NCS&A in favor of the Merger and
voting as stockholders of NCS&A in favor of the Merger at any meetings (or in
any action by written consent) required by the Texas Professional Association
Act.
(l) Malpractice Insurance. On or before the Effective Time, all
physicians and employees of NCS&A must be covered by medical malpractice
insurance and, if required by SCN, medical malpractice tail insurance to cover
prior occurrences shall be procured by NCS&A.
(m) Distribution of Excluded Assets. Prior to the Effective Time, NCS&A
shall have distributed to the NCS&A Stockholder all of the assets listed on
Schedule 5(m), which constitute the entirety of the assets owned by NCS&A not
being acquired by SCN (the "Excluded Assets").
(n) Satisfaction of Indebtedness. Prior to the Effective Time, NCS&A
shall have caused the payoff of all liabilities owed to third-parties and all
indebtedness owed to banks or other financial institutions or lenders or shall
have caused the assumption thereof by a new entity organized by the NCS&A
Stockholder; provided, however, that SCN shall assume payment for (i) all of
NCS&A's trade payables (rent, utilities, telephone, etc.) incurred by NCS&A
during the thirty day period prior to the Closing Date and in the Ordinary
Course of Business and (ii) NCS&A's state franchise tax liability not to exceed,
in the aggregate with the state franchise tax liabilities of Neal C. Small,
M.D., P.A., Associated Arthoscopy Institute, Inc., Allied Health Services, P.A.,
Alexander I. Glogau, M.D., P.A. and Access Medical Supply, Inc. being assumed by
SCN pursuant to the agreements referred to in Section 6 (a)(ix) below, $160,000.
Notwithstanding any contrary provision contained herein, SCN shall not be deemed
to have assumed, nor shall SCN assume: (i) any liability which may be incurred
by reason of any breach of or default under such contracts, leases, commitments
or obligations which occurred prior to the Closing Date; (ii) any liability for
any employee benefits payable to employees of NCS&A, including, but not limited
to, liabilities arising under any Employee Benefit Plan or accrued vacation or
sick pay; (iii) any liability based upon or arising out of a violation of any
laws by NCS&A, including, without limiting the generality of the foregoing, any
such liability which may arise in connection with agreements, contracts,
commitments or provision of services by NCS&A; nor (iv) any liability based upon
or arising out of any tortious or wrongful actions of NCS&A or any Physician
Owner, or any liability for the payment of any taxes imposed by law on NCS&A
arising from or by reason of the transactions contemplated by this Agreement.
NCS&A shall establish a reserve for income, excise or other taxes to be paid
upon the collection of any cash basis accounts receivable existing on the books
of NCS&A at the Effective Time.
(o) Conversion into Business Corporation. If required by the Texas
Professional Association Act, prior to the Effective Time, the NCS&A Stockholder
shall have caused the conversion of NCS&A to a Texas business corporation.
(p) Employee Benefit Plans. Prior to the Effective Time, all Employee
Benefit Plans shall be terminated in accordance with, and to the extent required
by, Applicable Law.
(q) Securities Laws Compliance. No NCS&A Stockholder shall dispose of
the SCN Shares received as a result of the Merger except in accordance with the
provisions of the Securities Act, the provisions of any rule adopted by the
Securities and Exchange Commission pursuant to the Securities Act and the "blue
sky" laws of any applicable state.
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<PAGE>
(r) Piggyback Registration.
(i) Notice of Piggyback Registration and Inclusion of SCN
Shares.
If within one (1) year from the date of this Agreement SCN
shall elect to file a registration statement ("Registration Statement") on Form
S-2 or S-3 (or any successor form thereto) under the Act with respect to any of
its securities, either for its own account or the account of a security holder
or holders, other than a registration on Form S-4 (or its equivalent) in
connection with a reorganization, or a registration relating solely to employee
benefit plans (excluding the foregoing events, a "Registration"), SCN will: (i)
promptly give the NCS&A Stockholder written notice thereof (which shall include
a list of the jurisdictions in which SCN intends to attempt to qualify such
securities under the applicable Blue Sky or other state securities laws) and
(ii) include in such Registration (and any related registration and/or
qualification under Blue Sky laws or other compliance), and in any underwriting
involved therein, all the SCN Shares specified in a written request delivered to
SCN by the NCS&A Stockholder within 30 days after delivery of such written
notice from SCN.
(ii) Underwriting in Piggyback Registration.
A. Notice of Underwriting in Piggyback Registration.
If the Registration of which SCN gives notice is for a
Registered public offering involving an underwriting, SCN shall so advise the
NCS&A Stockholder as a part of the written notice given above. In such event,
the right of the NCS&A Stockholder to Registration shall be conditioned upon
such underwriting and the inclusion of the NCS&A Stockholder's SCN Shares in
such underwriting to the extent provided in this Section. The NCS&A Stockholder
shall (together with SCN and any other holders distributing their securities
through such underwriting) enter into an underwriting agreement in customary
form with the representative of the Underwriter ("Underwriter's Representative")
for such offering. The NCS&A Stockholder shall have no right to participate in
the selection of underwriters for an offering pursuant to this Section.
B. Marketing Limitation in Piggyback Registration.
In the event the Underwriter's Representative advises the
NCS&A Stockholder in writing that market factors (including, without limitation,
the aggregate number of shares of Common Stock requested to be included in such
Registration, the general condition of the market, and the status of the persons
proposing to sell securities pursuant to the Registration) require a limitation
of the number of shares to be underwritten, the Underwriter's Representative
(subject to the allocation priority set forth in Section 5(r)(ii)C). may limit
(or reduce to zero) the number of SCN Shares to be included in such Registration
and underwriting; provided however, that any SCN Shares so excluded shall retain
any and all Registration rights set forth in this Section.
C. Allocation of SCN Shares in Piggyback Registration.
In the event that the Underwriter's Representative limits
the number of shares to be included in a Registration pursuant to Section
5(r)(ii)C., the number of shares to be included in such Registration shall be
allocated in the following manner: Common Stock held by persons who are not
contractually entitled to include shares in such Registration shall be excluded
from such Registration and underwriting to the extent required by such
limitation. If a limitation of the number of shares is still required after such
exclusion, the number of shares of Common Stock that may be included in the
Registration and underwriting by all selling shareholders (including the NCS&A
Stockholder and all other persons contractually entitled to such registration)
shall be allocated among the NCS&A Stockholder and other holders of securities
other than SCN Shares requesting and contractually entitled to include shares in
such Registration, in proportion, as nearly as practicable, to the respective
amounts of securities (including SCN Shares) which the NCS&A Stockholder and
such other holders would otherwise be entitled to include in such Registration.
No
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<PAGE>
SCN Shares or other securities excluded from the underwriting by reason of this
Section shall be included in the Registration Statement.
D. Withdrawal in Piggyback Registration.
If the NCS&A Stockholder disapproves of the terms of any
such underwriting, he may elect to withdraw therefrom by written notice to SCN
and the underwriter delivered at least seven days prior to the effective date of
the Registration Statement. Any SCN Shares or other securities excluded or
withdrawn from such underwriting shall be withdrawn from such Registration.
(iii) Blue Sky in Piggyback Registration.
In the event of any Registration of SCN Shares pursuant to
this Section, SCN will use its best efforts to register and/or qualify the
securities covered by the Registration Statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably appropriate for the
distribution of such securities; provided, however, that notwithstanding
anything in this Agreement to the contrary, in the event any jurisdiction in
which the securities shall be qualified imposes a non-waivable requirement that
expenses incurred in connection with the qualification of the securities be
borne by selling Stockholders, the NCS&A Stockholder shall pay its pro rata
share of such expenses.
6. Conditions to Obligation to Close.
(a) Conditions to Obligation of SCN. The obligation of SCN to
consummate the Merger is subject to satisfaction of the following conditions or
before the Closing Date:
(i) NCS&A shall have procured all of the third party consents
specified in Section 5(b) above;
(ii) the representations and warranties set forth in Section 3
above shall be true and correct in all material respects at and as of
the Closing Date;
(iii) NCS&A shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(iv) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency
of any federal, state, local, or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction, judgment, order, decree,
ruling, or charge would (A) prevent consummation of any of the
transactions contemplated by this Agreement, (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation, or (C) affect adversely the right of the Surviving
Corporation to own the former assets or to operate the former business
of NCS&A;
(v) SCN shall have received the resignations, effective as of
the Closing, of each director and officer of NCS&A other than those
whom SCN shall have specified in writing prior to the Closing;
(vi) all actions to be taken by NCS&A and/or the NCS&A
Stockholder in connection with consummation of the transactions
contemplated hereby and all certificates, opinions, instruments, and
other documents required to effect the transactions contemplated hereby
have been taken or delivered to SCN and are satisfactory in form and
substance to SCN;
(vii) the issuance of the SCN Shares to the NCS&A Stockholders
will not violate federal securities laws or the securities laws of any
state of the United States;
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<PAGE>
(viii) SCN shall have completed and be satisfied with its due
diligence review, including SCN's review of the Disclosure Schedule;
(ix) On or before the Closing Date the transactions
contemplated by (i) the Merger Agreement between SCN, Neal C. Small,
M.D., P.A. and Neal C. Small, M.D. dated July 3, 1997, (ii) the Asset
Purchase Agreement between SCN, Associated Arthoscopy Institute, Inc.,
Alexander I. Glogau, M.D. and Neal C. Small, M.D. dated July 3, 1997,
(iii) the Merger Agreement between SCN, Alexander I. Glogau, M.D., P.A.
and Alexander I. Glogau, M.D. dated July 3, 1997, (iv) the Asset
Purchase Agreement between SCN, Allied Health Services, P.A. and Neal
C. Small, M.D. dated July 3, 1997 and (v) the Asset Purchase Agreement
between SCN, Access Medical Supply, Inc., Alexander I. Glogau, M.D. and
Neal C. Small, M.D. dated July 3, 1997 shall have been consummated; and
(x) SCN's Board of Directors shall have approved the Merger in
their sole and absolute discretion.
SCN may waive any condition specified in this Section 6(a) if it executes a
writing so stating at or prior to the Closing.
(b) Conditions to Obligation of NCS&A. The obligation of NCS&A to
consummate the Merger is subject to satisfaction of the following conditions:
(i) This Agreement and the Merger shall have received the
NCS&A director and NCS&A Stockholders' approval required by the Texas
Professional Association Act.
(ii) the representations and warranties set forth in Section 4
above shall be true and correct in all material respects at and as of
the Closing Date;
(iii) SCN shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing; and
(iv) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency
of any federal, state, local or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction, judgment, order, decree,
ruling or charge would (A) prevent consummation of any of the
transactions contemplated by this Agreement, (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation, or (C) affect adversely the right of the Surviving
Corporation to own the former assets of NCS&A.
NCS&A may waive any condition specified in this Section 6(b) if it
executes a writing so stating at or prior to the Closing.
7. Items to be Delivered at or Prior to Closing.
(a) By the NCS&A Stockholder or NCS&A. The NCS&A Stockholder or NCS&A,
as applicable, shall execute and deliver to SCN, prior to or at the Closing:
(i) Certified resolutions of the directors and stockholders of
NCS&A authorizing the execution of all documents and the consummation
of all transactions contemplated hereby;
(ii) The Texas Articles of Merger which shall be in the form
required by SCN's legal counsel;
(iii) Stock Certificates representing ownership of all shares
of NCS&A, duly endorsed to SCN;
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<PAGE>
(iv) A Service Agreement in the form attached hereto as
Exhibit 7(a)(iv);
(v) A certificate duly executed by the President of NCS&A and
the NCS&A Stockholder stating as of the Closing Date, all
representations and warranties are true, all covenants and agreements
contained in the Agreement to be performed by NCS&A and the NCS&A
Stockholder has been performed or complied with and all conditions to
closing have been complied with;
(vi) An opinion from NCS&A's counsel in substantially the form
attached hereto as Exhibit 7(a)(vi);
(vii) Such other instruments as may be reasonably requested by
SCN in order to effect to or carry out the intent of this Agreement.
(b) By SCN. SCN shall deliver to NCS&A at or prior to the Closing:
(i) Stock Certificates representing the SCN Shares being
issued to the NCS&A Stockholder pursuant to Section 2(d)(v);
(ii) The Delaware Certificate of Merger in substantially the
form attached hereto as Exhibit 2(a)(1);
(iii) An opinion from SCN's counsel in substantially the form
attached hereto as Exhibit 7(b)(iii);
(iv) A certificate, duly executed by the President of SCN,
stating as of the Closing Date, all representations and warranties of
SCN are true, all covenants and agreements contained in the Agreement
to be performed by SCN have been performed or complied with and all
conditions to Closing have been satisfied;
(v) A Service Agreement in the form attached hereto as Exhibit
7(a)(iv);
(vi) Certified resolutions of SCN authorizing the execution of
all documents and the consummation of all transactions contemplated
thereby;
(vii) The cash payment for any fractional SCN Shares pursuant
to Section 2(e); and
(viii) Such other instruments as may be reasonably requested
by NCS&A or the NCS&A Stockholder in order to effect to or carry out
the intent of this Agreement.
8. Termination.
(a) Termination of Agreement. Either of the Parties may terminate this
Agreement with the prior authorization of its board of directors (whether before
or after stockholder approval) as provided below:
(i) the Parties may terminate this Agreement by mutual written
consent at any time prior to the Effective Time;
(ii) SCN may terminate this Agreement by giving written notice
to NCS&A at any time prior to the Effective Time (A) in the event NCS&A
has breached any representation, warranty, or covenant contained in
this Agreement in any material respect, SCN has notified NCS&A of the
breach, and the breach has continued without cure for a period of 30
days after the notice of breach, (B) if the Closing shall not have
occurred on or before July 31, 1997 by reason of the failure of any
condition precedent under Section 6(a) hereof (unless the failure
results primarily from SCN breaching any representation, warranty, or
covenant contained in this Agreement); or
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<PAGE>
(iii) NCS&A may terminate this Agreement by giving written
notice to SCN at any time prior to the Effective Time (A) in the event
SCN has breached any representation, warranty, or covenant contained in
this Agreement in any material respect, NCS&A has notified SCN of the
breach, and the breach has continued without cure for a period of 30
days after the notice of breach or (B) if the Closing shall not have
occurred on or before July 31, 1997 by reason of the failure of any
condition precedent under Section 6(b) hereof (unless the failure
results primarily from NCS&A breaching any representation, warranty, or
covenant contained in this Agreement).
(b) Effect of Termination. If any Party terminates this Agreement
pursuant to Section 8(a) above, all rights and obligations of the Parties
hereunder shall terminate without any liability of any party to any other Party
(except for any liability of any Party then in breach).
9. Indemnification.
(a) Indemnification by the NCS&A Stockholder. The NCS&A Stockholder,
agrees to and shall defend, indemnify and hold harmless SCN, its successors and
assigns, officers and directors against any and all losses, liabilities,
expenses (including, but without limitation, reasonable attorneys fees) and
damages resulting from or arising out of the breach, untruth or inaccuracy of
any representation, warranty or covenant of NCS&A or the NCS&A Stockholder set
forth in this Agreement. The NCS&A Stockholder shall not be liable to SCN for
any claims against the NCS&A Stockholder under this Section 9(a) unless and
until the aggregate of all claims against the NCS&A Stockholder exceeds the sum
of $25,000.00, whereupon SCN shall be entitled to recover the full amount of all
claims, including the initial $25,000.00.
(b) Notice to the NCS&A Stockholder; Opportunity to Defend. SCN agrees
to give prompt notice to the NCS&A Stockholder of the assertion of any claims,
or the commencement of any suits, actions or proceedings, in respect of which
indemnity may be sought under Section 9(a). The NCS&A Stockholder may
participate in and at his election, or at the request of SCN, assumes the
defense of any such suit, action or proceeding at the NCS&A Stockholders'
expense. The NCS&A Stockholder shall not be liable under Section 9(a) for any
settlement effected without their consent of any claim, litigation or proceeding
in respect of which indemnity may be sought under Section 9(a) which consent
shall not be unreasonably withheld.
(c) General Indemnification by SCN. SCN agrees to and shall defend,
indemnify and hold harmless the NCS&A Stockholder, his heirs and assigns against
any and all losses, liabilities, expenses (including, but without limitation,
reasonable attorneys fees) and damages resulting from the breach, untruth or
inaccuracy of any representations, warranties or covenants of SCN set forth in
this Agreement. SCN shall not be liable to the NCS&A Stockholder for any claims
against SCN under this Section 9(c) unless and until the aggregate of all claims
against SCN exceeds the sum of $25,000.00, whereupon the NCS&A Stockholder shall
be entitled to recover the full amount of all claims, including the initial
$25,000.00.
(d) Notice to SCN; Opportunity to Defend. The NCS&A Stockholder agrees
to give prompt notice to SCN of the assertion of any claim, or the commencement
of any suit, action or proceeding in respect of which indemnity may be sought
under Section 9(c). SCN may participate in and at its election, or at the
request of the NCS&A Stockholder, assume the defense of any such suit, action or
proceeding at SCN's expense. SCN shall not be liable under Section 9(c) for any
settlement effected without its consent of any claim, litigation or proceeding
in respect of which indemnity may be sought hereunder, which consent shall not
be unreasonably withheld.
(e) Right of Setoff. In the event of any breach of warranty,
representation, covenant or agreement by NCS&A or the NCS&A Stockholder giving
rise to indemnification to SCN under Section 9(a) hereof, SCN shall be entitled
to offset the amount of damages incurred by it as a result of such breach of
warranty, representation, covenant or agreement against the amounts payable to
the NCS&A Stockholder or Associated Orthopaedics & Sports Medicine, P.A. under
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<PAGE>
the Service Agreement. In the event that SCN determines that an amount is to be
so offset, as a condition precedent to such right of setoff, SCN shall give the
NCS&A Stockholder written notice of the amount of such proposed setoff and the
basis therefor within thirty (30) days after the date on which such amount is
finally determined. If SCN shall not have received written notice from the NCS&A
Stockholder contesting such setoff within twenty (20) days of their receipt of
such written notice from SCN, the setoff shall be deemed to have been consented
to by the NCS&A Stockholder, and SCN shall be entitled to deduct the entire
amount claimed as a setoff from the next succeeding amounts payable under the
Service Agreement. In the event that the NCS&A Stockholder shall object to the
proposed setoff by written notice received by SCN during such twenty (20) day
period, the entitlement of SCN to the claimed setoff shall be determined as set
forth in Section 10.4.3 of the Service Agreement.
10. Miscellaneous.
(a) Survival. The representations and warranties of the NCS&A
Stockholder, NCS&A and SCN contained in this Agreement and the indemnifications
contained herein shall survive the Closing. No claim for indemnification with
respect to any alleged misrepresentation or breach of warranty or covenant may
be made after three (3) years following the Closing Date. Any matter to which
indemnification pertains and with respect to which a claim has been asserted or
threatened following the Closing Date shall continue to be subject to the
indemnification under this Agreement until finally terminated, settled, resolved
or adjudicated; and all terms, conditions and stipulations of this Agreement
shall likewise continue to apply.
(b) No Third-Party Beneficiaries. Except as provided in Section 9(e),
this Agreement shall not confer any rights or remedies upon any Person other
than the parties and their respective successors and permitted assigns.
(c) Entire Agreement. This Agreement (including the documents referred
to herein) constitutes the entire agreement between the parties and supersedes
any prior understandings, agreements, or representations by or between the
parties, written or oral, to the extent they related in any way to the subject
matter hereof.
(d) Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties named herein and their respective successors
and permitted assigns. No party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other Party.
(e) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(f) Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(g) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
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<PAGE>
If to NCS&A: Copy to:
Neal C. Small, M.D. Loren Weinstein
4031 West Plano Parkway 4031 West Plano Parkway
Plano, Texas 75093 Plano, Texas 75093
Facsimile: (972) 964-3469 Facsimile: (972) 964-3469
If to SCN: Copy to:
Kerry R. Hicks, President David T. Popwell, Esq.
Specialty Care Network, Inc. Baker, Donelson, Bearman & Caldwell
44 Union Boulevard, Suite 600 165 Madison Ave, Suite 2100
Lakewood, Colorado 80228 Memphis, Tennessee 38103
Facsimile: (303) 716-1298 Facsimile: (901) 577-2303
Any party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other party
notice in the manner herein set forth.
(h) Governing Law; Venue. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of Texas without
giving effect to any choice or conflict of law provision or rule (whether of the
State of Texas or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of Texas. Each of the parties
submits to the jurisdiction of any state or federal court sitting in Denver,
Colorado, in any action or proceeding arising out of or relating to this
Agreement and agrees that all claims in respect of the action or proceeding may
be heard and determined in any such court. Each party also agrees not to bring
any action or proceeding arising out of or relating to this Agreement in any
other court. Each of the parties waives any defense of inconvenient forum to the
maintenance of any action or proceeding so brought and waives any bond, surety,
or other security that might be required of any other party with respect
thereto.
(i) Amendments and Waivers. The parties may mutually amend any
provision of this Agreement at any time prior to the Effective Time with the
prior authorization of their respective boards of directors; provided, however,
that any amendment effected subsequent to NCS&A stockholder approval will be
subject to the restrictions contained in the Texas Professional Association Act.
No amendment of any provision of this Agreement shall be valid unless the same
shall be in writing and signed by both of the parties. No waiver by any party of
any default, misrepresentation, or breach of warranty or covenant hereunder,
whether intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
(j) Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(k) Expenses. Each of the Parties will bear its own costs and expenses
(including legal fees and expenses) incurred in connection with this Agreement
and the transactions contemplated hereby.
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<PAGE>
(l) Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context otherwise requires. The
word "including" shall mean including without limitation.
(m) No Referrals Required. The Parties agree that no part of this
Agreement shall be construed to induce or encourage the referral of patients or
the purchase of health care services or supplies. The Parties acknowledge that
there is no requirement under this Agreement or any other agreement between the
parties that any party refer any patients to any health care provider or
purchase any health care goods or services from any source. Additionally, no
payment under this Agreement is in return for the referral of patients, if any,
or in return for purchasing, leasing or ordering services from SCN or any of
SCN's affiliates. The Parties may refer patients to any company or person
providing services and will make such referrals, if any, consistent with
professional medical judgment and the needs and wishes of the relevant patients.
(n) Incorporation of Exhibits and Schedules. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
* * * * *
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<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
SPECIALTY CARE NETWORK, INC.
By:_______________________________________
Title:____________________________________
NEAL C. SMALL, M.D. & ASSOCIATES, P.A.
By:_______________________________________
Title:____________________________________
------------------------------------------
NEAL C. SMALL, M.D., Stockholder
------------------------------------------
ALEXANDER I. GLOGAU, M.D., Stockholder
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<PAGE>
MERGER AGREEMENT
BY AND AMONG
SPECIALTY CARE NETWORK, INC.,
NEAL C. SMALL, M.D., P.A.,
AND
NEAL C. SMALL, M.D.
July 3, 1997
<PAGE>
TABLE OF CONTENTS
Page
----
1. Definitions...............................................................1
2. Basic Transaction.........................................................4
(a) The Merger......................................................4
(b) The Closing.....................................................4
(c) Actions at the Closing..........................................4
(d) Effect of Merger................................................4
(e) No Fractional Shares............................................5
3. Representations and Warranties of NCS and NCS Stockholder.................5
(a) Organization, Qualification, and Corporate Power................5
(b) NCS Stockholder Interests and Capitalization....................5
(c) Authorization of Transaction....................................5
(d) Noncontravention................................................5
(e) Subsidiaries and Investments....................................6
(f) Financial Statement.............................................6
(g) Undisclosed Liabilities.........................................6
(h) Brokers' Fees...................................................6
(i) Material Contracts..............................................6
(j) Insurance; Malpractice..........................................7
(k) No Changes Prior to Closing Date................................7
(l) Title; Condition................................................8
(m) Litigation......................................................8
(n) Permits and Licenses............................................8
(o) Tax Matters.....................................................8
(p) Employee Benefit Plans..........................................8
(q) Third-Party Relations...........................................9
(r) Compliance with Applicable Laws.................................9
(s) Employee Compensation..........................................10
(t) Environmental Matters..........................................10
(u) Healthcare Compliance..........................................10
(v) Fraud and Abuse................................................11
(w) Practice Compliance............................................11
(x) Rates and Reimbursement Policies...............................11
(y) Accounts Receivable............................................11
(z) Guaranties.....................................................11
(aa) Powers of Attorney.............................................12
(bb) Tangible Assets................................................12
(cc) SCN Share Ownership; Investment Intent.........................12
(dd) Full Disclosure................................................13
4. Representations and Warranties of SCN....................................13
(a) Organization...................................................13
(b) Capitalization.................................................13
(c) Authorization of Transaction...................................13
(d) Noncontravention...............................................13
(e) Brokers' Fees..................................................14
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(f) Securities Filings.............................................14
5. Covenants................................................................14
(a) General........................................................14
(b) Notices and Consents...........................................14
(c) Regulatory Matters and Approvals...............................14
(d) Operation of Business..........................................14
(e) Further Acts and Assurances....................................15
(f) Full Access....................................................15
(g) Notice of Developments.........................................15
(h) Exclusivity....................................................15
(i) Collection of Accounts Receivable..............................15
(j) Payment of Expenses............................................15
(k) Corporate Authorization........................................16
(l) Malpractice Insurance..........................................16
(m) Distribution of Excluded Assets................................16
(n) Satisfaction of Indebtedness...................................16
(o) Conversion into Business Corporation...........................16
(p) Employee Benefit Plans.........................................16
(q) Securities Laws Compliance.....................................16
6. Conditions to Obligation to Close........................................18
(a) Conditions to Obligation of SCN................................18
(b) Conditions to Obligation of NCS................................19
7. Items to be Delivered at or Prior to Closing.............................19
(a) By the NCS Stockholder or NCS..................................19
(b) By SCN.........................................................20
8. Termination..............................................................20
(a) Termination of Agreement.......................................20
(b) Effect of Termination..........................................21
9. Indemnification..........................................................21
(a) Indemnification by the NCS Stockholder.........................21
(b) Notice to the NCS Stockholder; Opportunity to Defend...........21
(c) General Indemnification by SCN.................................21
(d) Notice to SCN; Opportunity to Defend...........................21
(e) Right of Setoff................................................21
10. Miscellaneous...........................................................22
(a) Survival.......................................................22
(b) No Third-Party Beneficiaries...................................22
(c) Entire Agreement...............................................22
(d) Succession and Assignment......................................22
(e) Counterparts...................................................22
(f) Headings.......................................................22
(g) Notices........................................................22
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(h) Governing Law; Venue...........................................23
(i) Amendments and Waivers.........................................23
(j) Severability...................................................23
(k) Expenses.......................................................23
(l) Construction...................................................23
(m) No Referrals Required..........................................23
(n) Incorporation of Exhibits and Schedules........................24
EXHIBIT 1 AGREEMENT AND PLAN OF MERGER................Exhibit 1-1
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EXHIBIT 2(a)(1) CERTIFICATE OF MERGER.................Exhibit 2(a)(1)-1
EXHIBIT 2(a)(2) TEXAS ARTICLES OF MERGER..............Exhibit 2(a)(2)-1
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EXHIBIT 7(a)(iv) SERVICE AGREEMENT....................Exhibit 7(a)(iv)-1
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EXHIBIT 7(a)(vi) NCS OPINION LETTER...................Exhibit 7(a)(vi)-1
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EXHIBIT 7(b)(iii) SCN OPINION LETTER..................Exhibit 7(b)(iii)-1
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MERGER AGREEMENT
----------------
THIS MERGER AGREEMENT (this "Agreement") is entered into this the 3rd
day of July, 1997, by and among SPECIALTY CARE NETWORK, INC., a Delaware
corporation ("SCN"), NEAL C. SMALL, M.D., P.A., a Texas professional association
("NCS") and NEAL C. SMALL, M.D. (the "NCS Stockholder"). SCN, NCS and the NCS
Stockholder are referred to collectively herein as the "Parties."
W I T N E S S E T H:
--------------------
WHEREAS, SCN and NCS have determined that it is desirable and in the
best interests of their respective corporations and stockholders that NCS merge
with and into SCN, with SCN as the surviving corporation, on the terms and
subject to the conditions set forth in this Agreement and the corresponding
Agreement and Plan of Merger in the form attached hereto as Exhibit 1 (the
"Agreement and Plan of Merger");
WHEREAS, SCN and NCS intend that the transaction contemplated by this
Agreement shall qualify as a tax-free reorganization under Section 368(a)(1)(A)
of the Internal Revenue Code of 1986, as amended (the "Code") and intend that
this Agreement along with the Agreement and Plan of Merger shall constitute a
"plan of reorganization" within the meaning of Section 368 of the Code;
WHEREAS, the Parties do not intend for this Agreement to be a binding
obligation of any Party unless and until the provisions of Section 6 are
satisfied or waived by the appropriate party; and
WHEREAS, the Parties desire to set forth in writing the terms and
conditions under which said transaction will be consummated.
NOW, THEREFORE, in consideration of the foregoing and of the
representations, warranties, covenants and agreements set forth herein, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged by the Parties, and in accordance with the applicable
provisions of the Delaware General Corporation Law and the Professional
Association Act, the parties hereby agree as follows:
1. Definitions.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Agreement" has the meaning set forth in the preface above.
"Agreement and Plan of Merger" has the meaning set forth in the first
recital above.
"Applicable Laws" has the meaning set forth in Section 3(r).
"Texas Article of Merger" has the meaning set forth in Section 2(a)
below.
"Texas Professional Association Act" means the Professional Association
Act of the State of Texas), as amended.
"Closing Date" has the meaning set forth in Section 2(b) below.
"Closing" has the meaning set forth in Section 2(b) below.
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"Code" has the meaning set forth in the recitals above.
"Conversion Ratio" has the meaning set forth in Section 2(d)(v) below.
"Delaware Certificate of Merger" shall have the meaning set forth in
Section 2(a) below.
"Delaware General Corporation Law" means the General Corporation Law of
the State of Delaware, as amended.
"Disclosure Schedule" has the meaning set forth in Section 3 below.
"NCS" has the meaning set forth in the preface above.
"NCS Share" means any share of the issued and outstanding common stock
of NCS at the date of this Agreement.
"NCS Stockholder" has the meaning set forth in the preface above.
"Effective Time" has the meaning set forth in Section 2(d)(i) below.
"Employee Benefit Plans" has the meaning set forth in Section 3(p)(i)
below.
"Environmental Laws" means all federal, state, and local laws, rules,
regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and
charges thereunder and other governmental requirements relating to pollution,
control of chemicals, storage and handling of petroleum products, management of
waste (including biohazardous or biomedical waste), discharges of materials into
the environment, health, safety, natural resources, and the environment,
including laws relating to emissions, discharges, releases, or threatened
releases of pollutants, contaminants, or chemical, industrial, hazardous, or
toxic materials or wastes into ambient air, surface water, ground water, or
lands or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling of pollutants,
contaminants, or chemical, industrial, hazardous, or toxic materials or wastes.
"ERISA" has the meaning set forth in Section 3(p)(i) below.
"Excluded Assets" has the meaning set forth in Section 5(m) below.
"GAAP" means United States generally accepted accounting principles as
in effect from time to time.
"Hazardous Materials" has the meaning set forth in Section 3(t) below.
"IRS" means the Internal Revenue Service.
"Knowledge" means actual knowledge after reasonable investigation.
"Medical Waste" includes, but is not limited to, pathological waste,
blood, sharps, wastes from surgery or autopsy, dialysis waste, including
contaminated disposable equipment and supplies, cultures and stock of infectious
agents and associated biological agents, contaminated animals, isolation wastes,
contaminated equipment, laboratory waste, various other biological waste and
discarded materials contaminated with or exposed to blood, excretion or
secretion from human beings or animals, and any substance, pollutant, material
or contaminant listed or regulated under the Medical Waste Tracking Act of 1988,
42 U.S.C. ss.ss. 6992, et seq.
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<PAGE>
"Medical Waste Law" means the Medical Waste Tracking Act of 1988, as
amended, the U.S. Public Vessel Medical Waste Anti-Dumping Act of 1988, 33
U.S.C.A. ss.ss. 2501, et seq., the Marine Protection, Research and Sanctuaries
Act of 1972, 33 U.S.C.A. ss.ss. 1401, et seq., the Occupational Safety and
Health Act, 29 U.S.C.A. ss.ss. 651, et seq., the United States Department of
Health and Human Services, National Institute for Occupational Self-Safety and
Health Infectious Waste Disposal Guidelines, Publication No. 88-119, all
regulations and orders issued pursuant to any of the foregoing, and any other
federal, state, regional, county, municipal or other local laws, regulations and
ordinances insofar as they purport to regulate Medical Waste or impose
requirements relating to Medical Waste.
"Merger" has the meaning set forth in Section 2(a) below.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice.
"Parties" has the meaning set forth in the preface above.
"PBGC" has the meaning set forth in Section 3(p)(ii) below.
"PCBs" has the meaning set forth in Section 3(t) below.
"Person" means an individual, a partnership, a limited liability
company, a corporation, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization, or a governmental entity (or any
department, agency, or political subdivision thereof).
"Practice Assets" has the meaning set forth in Section 3(l) below.
"SCN Share" means any share of the common stock, $.001 par value per
share, of SCN.
"SCN" has the meaning set forth in the preface above.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance,
charge or other security interest other than (a) mechanic's, materialmen's, and
similar liens, (b) liens for taxes not yet due and payable or for taxes that the
taxpayer is contesting in good faith through appropriate proceedings, (c)
purchase money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.
"Service Agreement" shall mean that certain Service Agreement dated as
of the Closing Date by and among SCN, Associated Orthopaedics & Sports Medicine,
P.A., Alexander I. Glogau, M.D., and the NCS Stockholder to be executed and
delivered at the Closing.
"Subsidiary" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) owns a majority of the common stock or has the
power to vote or direct the voting of sufficient securities to elect a majority
of the directors.
"Surviving Corporation" has the meaning set forth in Section 2(a)
below.
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<PAGE>
2. Basic Transaction.
(a) The Merger. On and subject to the terms and conditions of this
Agreement, NCS will merge with and into SCN (the "Merger") at the Effective
Time. SCN shall enter into the Agreement and Plan of Merger upon adoption of the
Agreement and Plan of Merger by the Board of Directors of SCN and the
satisfaction or waiver of the conditions precedent to SCN's obligations set
forth in this Agreement. NCS shall enter into the Agreement and Plan of Merger
upon adoption of the Agreement and Plan of Merger by the Board of Directors of
NCS and the NCS Stockholder and the satisfaction or waiver of the conditions
precedent to NCS's obligation set forth in this Agreement. Upon all other
conditions herein being satisfied or waived in accordance with the terms of this
Agreement, a Certificate of Merger in substantially the form attached hereto as
Exhibit 2(a)(1) (the "Delaware Certificate of Merger") shall be executed and
filed with the Secretary of State of the State of Delaware and Secretary of
State of the State of Texas in substantially the form attached hereto as Exhibit
2(a)(2) (the "Texas Article of Merger") shall be executed and filed with the
Secretary of State of the State of Texas, together with all certificates or
documents as may be required to be filed under the laws of the State of Delaware
and the State of Texas to effect the Merger. Thereafter, the separate corporate
existence of NCS shall cease and NCS shall be merged with and into SCN (the
"Surviving Corporation").
(b) The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of NCS, 4031 West
Plano Parkway, Plano, Texas 75093, commencing at 9:00 A.M. local time on the
second business day following the day on which the last of the conditions set
forth in Section 6 have been fulfilled or waived, or such other date or place as
the Parties may mutually determine (the "Closing Date"). Time is of the essence
for this Agreement.
(c) Actions at the Closing. At the Closing, (i) NCS will deliver to SCN
the various certificates, instruments, and documents referred to in Section 7(a)
below, (ii) SCN will deliver to NCS the various certificates, instruments, and
documents referred to in Section 7(b) below, (iii) SCN and NCS will file with
the Secretary of State of the State of Delaware the Delaware Certificate of
Merger, and (iv) SCN and NCS will file with the Secretary of State of the State
of Texas the Texas Articles of Merger.
(d) Effect of Merger.
(i) General. The Merger shall become effective at the time
(the "Effective Time") SCN and NCS file the Delaware Certificate of
Merger with the Secretary of State of the State of Delaware and file
the Texas Articles of Merger with the Secretary of State of the State
of Texas. The Merger shall have the effect set forth in the Delaware
General Corporation Law and the Texas Professional Association Act. The
Surviving Corporation may, at any time after the Effective Time, take
any action (including executing and delivering any document) in the
name and on behalf of either SCN or NCS in order to carry out and
effectuate the transactions contemplated by this Agreement.
(ii) Certificate of Incorporation. The Certificate of
Incorporation of SCN in effect at and as of the Effective Time will
remain the Certificate of Incorporation of the Surviving Corporation
without any modification or amendment as a result of the Merger.
(iii) Bylaws. The Bylaws of SCN in effect at and as of the
Effective Time will remain the Bylaws of the Surviving Corporation
without any modification or amendment as a result of the Merger.
(iv) Directors and Officers. The directors and officers of SCN
in office at and as of the Effective Time will remain the directors and
officers of the Surviving Corporation (retaining their respective
positions and terms of office).
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(v) Conversion of NCS Shares. At and as of the Effective Time,
each of the issued and outstanding NCS Shares shall be converted into
(A) the right to receive 90.78 SCN Shares (the ratio of 90,780 SCN
Shares divided by the total number of NCS Shares outstanding is
referred to herein as the "Conversion Ratio"). The Conversion Ratio
shall be subject to equitable adjustment in the event of any stock
split, stock dividend, reverse stock split, or other change in the
number of NCS Shares or SCN Shares outstanding.
(vi) SCN Shares. Each SCN Share issued and outstanding at and
as of the Effective Time will remain issued and outstanding and shall
be unaffected by the Merger.
(e) No Fractional Shares. No fractional SCN Shares shall be issued
pursuant to the Merger. In lieu of the issuance of any such fractional SCN
Shares, cash adjustments will be paid to holders in respect of any fractional
SCN Shares that would otherwise be issuable. The amount of such adjustment shall
be the product of such fraction of a SCN Share multiplied by $11.75.
3. Representations and Warranties of NCS and NCS Stockholder. NCS and
the NCS Stockholder, jointly and severally, represent and warrant to SCN that
the statements contained in this Section 3 are correct and complete as of the
date of this Agreement and will be correct and complete as of the Closing Date
(as though made then and as though the Closing Date were substituted for the
date of this Agreement throughout this Section 3), except as set forth in the
disclosure schedule (the "Disclosure Schedule"). The Disclosure Schedule will be
arranged in paragraphs corresponding to the lettered and numbered paragraphs
contained in this Section 3.
(a) Organization, Qualification, and Corporate Power. NCS is a
professional association duly organized, validly existing, and in good standing
under the laws of the State of Texas. NCS is duly authorized to conduct
business and is in good standing under the laws of each jurisdiction in which
the character or location of the properties owned or the business conducted by
NCS makes such qualification necessary. NCS has the full corporate power and
authority to carry on the business in which it is engaged and to own and use the
properties owned and used by it.
(b) NCS Stockholder Interests and Capitalization. The capital stock of
NCS is owned in the manner set forth in Section 3(b) of the Disclosure Schedule.
All of the issued and outstanding NCS Shares have been duly authorized and are
validly issued, fully paid, and nonassessable. There are no outstanding or
authorized options, warrants, purchase rights, subscription rights, conversion
rights, exchange rights or other contracts or commitments that could require NCS
to issue, sell or otherwise cause to become outstanding any of its capital
stock. There are no outstanding or authorized stock appreciation, phantom stock,
profit participation, or similar rights with respect to NCS. As of the date of
this Agreement, the authorized capital stock of NCS consists of 100,000 shares
of NCS common stock, of which 1,000 shares were issued and outstanding.
(c) Authorization of Transaction. NCS has the full corporate power and
authority to execute and deliver this Agreement and to perform its obligations
hereunder. This Agreement constitutes the valid and legally binding obligation
of NCS and the NCS Stockholder, enforceable in accordance with its terms and
conditions.
(d) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge or other restriction of any government,
governmental agency, professional regulatory organization or court to which NCS
is subject or any provision of the charter or bylaws of NCS or (ii) conflict
with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, modify,
or cancel, or require any notice under any agreement, contract, lease, license,
instrument or other arrangement to which NCS is a party or by which it is bound
or to which any of its assets is subject (or result in the imposition of any
Security Interest upon any of its assets). NCS is not required to give any
notice to, make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order for the Parties to
consummate the transactions contemplated by this Agreement.
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(e) Subsidiaries and Investments. NCS does not own, directly or
indirectly, any capital stock or other equity ownership or proprietary interest
in any other corporation, partnership, association, limited liability company,
trust, joint venture or other entity.
(f) Financial Statements. NCS has furnished SCN with unaudited balance
sheets dated December 31, 1995 and 1996 and May 31, 1997 and unaudited income
statements for the twelve (12) month periods ending December 31, 1996, 1995 and
1994 and the five (5) months ended May 31, 1997. Such financial statements,
including the notes thereto, except as indicated therein, were prepared on a
basis consistent with past accounting practices of NCS and fairly present the
results of operations for the periods noted therein. The balance sheets of NCS
delivered by NCS to SCN fairly present the financial condition of NCS at the
date thereof, and except as indicated therein, reflect all claims against and
all debts and liabilities of NCS, fixed or contingent, as of the date thereof.
(g) Undisclosed Liabilities. NCS has no uninsured liability (whether
known or unknown, asserted or unasserted, absolute or contingent, accrued or
unaccrued, liquidated or unliquidated, and whether due or to become due),
including any liability for taxes, except for (i) liabilities set forth on the
face of the balance sheet dated as of December 31, 1996 and (ii) liabilities
which have arisen after December 31, 1996 in the Ordinary Course of Business
(none of which results from, arises out of, relates to, is in the nature of, or
was caused by any breach of contract, breach of warranty, tort, infringement, or
violation of law).
(h) Brokers' Fees. NCS does not have any liability or obligation to pay
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement.
(i) Material Contracts. Section 3(i) of the Disclosure Schedule lists
the following contracts and other material agreements to which NCS is a party:
(i) any agreement (or group of related agreements) for the
lease of real or personal property to or from any Person;
(ii) any agreement (or group of related agreements) for the
purchase or sale of supplies, products, or other personal property or
for the furnishing or receipt of services;
(iii) any agreement concerning a partnership, limited
liability company or joint venture;
(iv) any agreement (or group of related agreements) under
which NCS has created, incurred, assumed, or guaranteed any
indebtedness for borrowed money, or any capitalized lease obligation
pursuant to which it has imposed a Security Interest in respect of any
of its assets, tangible or intangible;
(v) any agreement concerning confidentiality or
noncompetition;
(vi) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other plan or
arrangement for the benefit of NCS's current or former directors,
officers, and employees;
(vii) any agreement for the employment of any individual on a
full-time, part-time, consulting, or other basis providing annual
compensation in excess of $25,000 or providing severance benefits;
(viii) any agreement pursuant to which NCS has advanced or
loaned any amount to any of its directors, officers, and employees;
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<PAGE>
(ix) any agreement pursuant to which the consequences of a
default or termination could have a material adverse effect on the
business, financial condition, operations, results of operations, or
future prospects of NCS;
(x) any third-party provider agreement; or
(xi) any other agreement (or group of related agreements)
outside the ordinary course of NCS's business or operations the
performance of which involves consideration in excess of $15,000.
NCS has delivered or given SCN access to a correct and complete copy of each
written agreement listed in Section 3(i) of the Disclosure Schedule (as amended
through the Closing Date) and a written summary setting forth the terms and
conditions of each oral agreement referred to in Section 3(i) of the Disclosure
Schedule. With respect to each such agreement: (A) the agreement is legal,
valid, binding, enforceable, and in full force and effect; (B) except as set
forth in Section 3(i) of the Disclosure Schedule, no notice of this Agreement or
consent of any third party is required in order for NCS to execute and deliver
this Agreement or to consummate the transactions contemplated hereby, and, after
assignment to SCN at Closing, the agreement will continue to be legal, valid,
binding, enforceable, and in full force and effect on identical terms; (C) no
party is in breach or default, and no event has occurred which with notice or
lapse of time would constitute a breach or default, or permit termination,
modification, or acceleration, under the agreement; and (D) no party has
repudiated any provision of the agreement.
(j) Insurance; Malpractice. Section 3(j) of the Disclosure Schedule
contains a list and brief description of all policies or binders of fire,
liability, product liability, workers compensation, health and other forms of
insurance policies or binders currently in force insuring against risks which
will remain in full force and effect at least through the Closing Date. Section
3(j) of the Disclosure Schedule contains a description of all current
malpractice liability insurance policies of NCS Stockholder, NCS and NCS's
professional employees and all predecessor policies in effect since February 1,
1990. Neither NCS, the NCS Stockholder, nor NCS's professional employees have,
in the last seven (7) years, filed a written application for any insurance
coverage relating to NCS's business or property which has been denied by an
insurance agency or carrier. NCS, NCS's professional employees and the NCS
Stockholder have been continuously insured for professional malpractice claims
during the same period. Section 3(j) of the Disclosure Schedule also sets forth
a list of all claims for any insured loss in excess of Five Thousand Dollars
($5,000.00) per occurrence filed by or against NCS, NCS's professional employees
or the NCS Stockholder during the three (3) year period immediately preceding
the date hereof, including workers compensation, general liability,
environmental liability and professional malpractice liability claims. None of
NCS, NCS's professional employees or the NCS Stockholder is in material default
with respect to any provision contained in any such policy and none of them has
failed to give any notice or present any claim under any such policy in due and
timely fashion.
(k) No Changes Prior to Closing Date. During the period from December
31, 1996 through the date hereof, NCS has not (i) incurred any liability or
obligation of any nature (whether known or unknown, asserted or unasserted,
absolute or contingent, accrued or unaccrued, liquidated or unliquidated and
whether due or to become due), except in the Ordinary Course of Business, (ii)
written off as uncollectible any notes or accounts receivable, except write-offs
in the Ordinary Course of Business charged to applicable reserves, none of which
individually or in the aggregate is material to NCS, (iii) conducted its
business in such a manner so as to materially increase its accounts payable or
so as to materially decrease its accounts receivable, (iv) granted any increase
in the rate of wages, salaries, bonuses, or other remunerations of any employee,
except in the Ordinary Course of Business, (v) canceled or waived any claims or
rights of substantial value, (vi) made any change in any method of accounting,
(vii) otherwise conducted its business or entered into any transaction, except
in the usual and ordinary manner and in the Ordinary Course of Business, (viii)
agreed, whether or not in writing, to do any of the foregoing, or (ix) disposed
of its assets other than in the Ordinary Course of Business.
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(l) Title; Condition. Section 3(l) of the Disclosure Schedule contains
a complete, true and correct list of those assets which are material to the
business or operations of NCS (the "Practice Assets"). NCS has good and
marketable title to all of the Practice Assets subject to no mortgage, pledge,
lien, lease, conditional sales agreement, option, right of first refusal or any
other encumbrance or charge, including taxes. NCS agrees to remove all security
interests reflected on any search of public records, if any, prior to the
Effective Time and remove any other security interest filed with respect to the
Practice Assets between the date of such search of public records and the
Effective Time.
(m) Litigation. There is no suit, action, proceeding at law or in
equity, arbitration, administrative proceeding or other proceeding or
investigation by any governmental entity pending, or threatened against, or
affecting NCS or any of the Practice Assets, or any physician or other health
care professional engaged or employed by NCS, and there is no basis for any of
the foregoing. None of the actions, suits, proceedings, hearings, and
investigations set forth in Section 3(m) of the Disclosure Schedule could result
in any material adverse change in the operations, results of operations, or
future prospects of the business assets to be operated by SCN after the Closing.
(n) Permits and Licenses. NCS and all physicians and other health care
professionals engaged or employed by NCS have all permits and licenses required
by all applicable laws; have made all regulatory filings necessary for the
conduct of NCS's business; and are not in violation of any of said permitting or
licensing requirements.
(o) Tax Matters. All federal, state and other tax returns of NCS
required by law to be filed have been timely filed, and NCS has paid or
adequately provided for all taxes (including taxes on properties, income,
franchises, licenses, sales and payrolls) which have become due pursuant to such
returns or pursuant to any assessment, except for any taxes and assessments, the
amount, applicability or validity of which is currently being contested in good
faith by appropriate proceedings and with respect to which NCS has set aside on
its books adequate reserves. There are no tax liens on any of NCS's assets
except those with respect to taxes not yet due and payable. There are no pending
tax examinations of NCS's tax returns nor has NCS received a revenue agent's
report asserting a tax deficiency in the last twelve (12) months. There are not
and will not be at the Closing Date, any claims pending or asserted against NCS
for unpaid taxes by any federal, state or other governmental body. NCS has
withheld from each payment made to employees of NCS the amount of all taxes
(including, but not limited to, federal, state and local income taxes and
Federal Insurance Contribution Act taxes) required to be withheld therefrom and
all amounts customarily withheld therefrom, and has set aside all other employee
contributions or payments customarily set aside with respect to such wages and
has paid or will pay the same to, or has deposited or will deposit such payment
with, the proper tax receiving officers or other appropriate authorities.
(p) Employee Benefit Plans.
(i) List of Plans. Section 3(p) of the Disclosure Schedule
contains an accurate and complete list of all employee benefit plans
("Employee Benefit Plans") within the meaning of Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
whether or not any Employee Benefit Plans are otherwise exempt from the
provisions of ERISA, established, maintained or contributed to by NCS
(including all employers (whether or not incorporated) which by reason
of common control are treated together with NCS and/or the NCS
Stockholder as a single employer within the meaning of Section 414 of
the Code) since September 2, 1974.
(ii) Status of Plans. NCS has never maintained and does not
now maintain or contribute to any Employee Benefit Plan subject to
ERISA which is not in substantial compliance with ERISA, or which has
incurred any accumulated funding deficiency within the meaning of
Section 412 or 418B of the Code, or which has applied for or obtained a
waiver from the Internal Revenue Service of any minimum funding
requirement under Section 412 of the Code or which is subject to Title
IV of ERISA. NCS has not incurred any liability to the Pension Benefit
Guaranty Corporation ("PBGC") in connection with any Employee Benefit
Plan covering any employees of NCS or ceased operations
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at any facility or withdrawn from any such Plan in a manner which could
subject it to liability under Section 4062(f), 4063 or 4064 of ERISA,
and knows of no facts or circumstances which might give rise to any
liability of NCS to the PBGC under Title IV of ERISA which could
reasonably be anticipated to result in any claims being made against
NCS by the PBGC. NCS has not incurred any withdrawal liability
(including any contingent or secondary withdrawal liability) within the
meaning of Sections 4201 and 4202 of ERISA, to any Employee Benefit
Plan which is a Multiemployer Plan (as defined in Section 4001 of
ERISA), and no event has occurred, and there exists no condition or set
of circumstances, which represent a material risk of the occurrence of
any withdrawal from or the partition, termination, reorganization or
insolvency of any Multiemployer Plan which would result in any
liability of NCS.
(iii) Contributions. Full payment has been made of all amounts
which NCS is required, under applicable law or under any Employee
Benefit Plan or any agreement relating to any Employee Benefit Plan to
which NCS is a party, to have paid as contributions thereto as of the
last day of the most recent plan year of such Employee Benefit Plan
ended prior to the date hereof. NCS has made adequate provision for
reserves to meet contributions that have not been made because they are
not yet due under the terms of any Employee Benefit Plan or related
agreements. Benefits under all Employee Benefit Plans are as
represented and have not been increased subsequent to the date as of
which documents have been provided.
(iv) Tax Qualification. Each Employee Benefit Plan intended to
be qualified under Section 401(a) of the Code has been determined to be
so qualified by the Internal Revenue Service and nothing has occurred
since the date of the last such determination which resulted or is
likely to result in the revocation of such determination.
(v) Transactions. NCS has not engaged in any transaction with
respect to the Employee Benefit Plans which would subject it to a
material tax, penalty or liability for prohibited transactions under
ERISA or the Code nor have any of its directors, officers or employees
to the extent they or any of them are fiduciaries with respect to such
plans, breached any of their responsibilities or obligations imposed
upon fiduciaries under Title I of ERISA which would result in any
material claim being made under or by or on behalf of any such plans by
any party with standing to make such claim.
(vi) Other Plans. NCS presently does not maintain any Employee
Benefit Plans or any other foreign pension, welfare or retirement
benefit plans other than those listed on Section 3(p) of the Disclosure
Schedule.
(vii) Documents. NCS has delivered or caused to be delivered
to SCN true and complete copies of (i) all Employee Benefit Plans as in
effect, together with all amendments thereto which will become
effective at a later date, as well as the latest IRS determination
letter obtained with respect to any such Employee Benefit Plan
qualified under Section 401 or 501 of the Code, and (ii) the most
recently filed Form 5500 for each Employee Benefit Plan required to
file such form.
(q) Third-Party Relations. NCS has not received any notice that any
material patient, supplier, employee or associated physician intends to cease
doing business with NCS.
(r) Compliance with Applicable Laws. NCS has operated in compliance
with all federal, state, county and municipal laws, constitutions, ordinances,
statutes, rules, regulations and orders applicable thereto ("Applicable Laws").
No item disclosed in Section 3(r) of the Disclosure Schedule could have a
material effect on SCN. Neither NCS nor any physician associated with or
employed by NCS has received payment or any remuneration whatsoever to induce or
encourage the referral of patients or the purchase of goods and/or services as
prohibited under 42 U.S.C.
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<PAGE>
ss. 1320a-7b(b), or otherwise perpetrated any Medicare or Medicaid fraud or
abuse nor has any fraud or abuse been alleged within the last five (5) years by
any government agency.
(s) Employee Compensation. NCS has paid or discharged or will pay or
discharge or assume all liabilities for compensation and benefits to which all
employees, including physician employees, are entitled through the Closing Date,
including but not limited to all salaries, wages, bonuses, incentive
compensation, payroll taxes, hospitalization and medical expenses, deferred
compensation, and vacation and sick pay, as well as any severance pay becoming
due as a result of the termination of NCS's employees.
(t) Environmental Matters.
(i) NCS is in full compliance with all applicable
Environmental Laws.
(ii) NCS has not authorized or conducted the disposal or
release, or other handling of any hazardous substance, Medical Waste,
hazardous waste, hazardous material, hazardous constituent, toxic
substance, pollutant, contaminant, asbestos, radon, polychlorinated
biphenyls ("PCBs"), petroleum product or waste (including crude oil or
any fraction thereof), natural gas, liquefied gas, synthetic gas,
biohazardous or biomedical material, or other material defined,
regulated controlled or potentially subject to any remediation
requirement under any Environmental Law (collectively "Hazardous
Materials"), on, in, under or affecting any property owned or leased by
NCS.
(iii) NCS has, and is in compliance with, all licenses,
permits, registrations, and government authorizations necessary to
operate under all applicable Environmental Laws. Section 3(t) of the
Disclosure Schedule lists all such licenses, permits, registrations and
government authorizations required by any Environmental Law.
(iv) NCS has not received any written or oral notice from any
governmental agency or entity or any other Person and there is no
pending or threatened claim, litigation or any administrative agency
proceeding that: (a) alleges a violation of any Environmental Law(s) by
NCS or, with respect to the Practice Assets or any property owned or
leased by NCS (b) alleges that NCS is a liable party or potentially
responsible party under the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. ss. 9601, et seq., or any
analogous state law, (c) has resulted or could result in the attachment
of an environmental lien on any of the Practice Assets or property
owned or leased by NCS, or (d) alleges that NCS is liable for any
contamination of the environment, contamination of any property owned
or leased by NCS, damage to natural resources, property damage, or
personal injury based on its activities or the activities of any
predecessor or third parties involving Hazardous Materials, whether
arising under the Environmental Laws, common law principles, or other
legal standards.
(v) With respect to the generation, transportation, treatment,
storage and disposal or other handling of Medical Waste, NCS has
complied with all Medical Waste Laws.
(u) Healthcare Compliance. NCS is participating in or otherwise
authorized to receive reimbursement from Medicare and Medicaid and is a party to
other third-party payor agreements if any, discussed in Section 3(i) of the
Disclosure Schedule. All necessary certifications and contracts required for
participation in such programs are in full force and effect and have not been
amended or otherwise modified, rescinded, revoked or assigned, and no condition
exists or event has occurred which in itself or with the giving of notice or the
lapse of time or both would result in the suspension, revocation, impairment,
forfeiture or non-renewal of any such third-party payor program. NCS is in
compliance in all material respects with the requirements of all such
third-party payors. NCS, the NCS Stockholder, and NCS's physician employees do
not have any financial relationship (whether investment interest, compensation
interest, or otherwise) with any entity to which any of the foregoing refer
patients, except for such financial relationships
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that qualify for exceptions to state and federal laws restricting physician
referrals to entities in which they have a financial interest.
(v) Fraud and Abuse. NCS, the NCS Stockholder and persons and entities
providing professional services for NCS have not engaged in any activities which
are prohibited under 42 U.S.C. ss. 1320a-7b, or the regulations promulgated
thereunder pursuant to such statutes, or related state or local statutes or
regulations, or which are prohibited by rules of professional conduct, including
the following: (a) knowingly and willfully making or causing to be made a false
statement or representation of a material fact in any application for any
benefit or payment; (b) knowingly and willfully making or causing to be made any
false statement or representation of a material fact for use in determining
rights to any benefit or payment; (c) failing to disclose knowledge by a
claimant of the occurrence of any event affecting the initial or continued right
to any benefit or payment on its own behalf or on behalf of another, with intent
to fraudulently secure such benefit or payment; or (d) knowingly and willfully
soliciting or receiving any remuneration (including any kickback, bribe, or
rebate), directly or indirectly, overtly or covertly, in cash or in kind or
offering to pay or receive such remuneration (1) in return for referring an
individual to a person for the furnishing or arranging for the furnishing or any
item or service for which payment may be made in whole or in part by Medicare or
Medicaid, or (2) in return for purchasing, leasing, or ordering or arranging for
or recommending purchasing, leasing, or ordering any good, facility, service or
item for which payment may be made in whole or in part by Medicare or Medicaid.
(w) Practice Compliance. NCS is duly licensed as a medical practice and
is lawfully operated in accordance with the requirements of all Applicable Laws
and has all necessary authorizations for the use and operation of a medical
practice, all of which are in full force and effect. There are no outstanding
notices of deficiencies relating to NCS issued by any governmental authority or
third-party payor requiring conformity or compliance with any applicable law or
condition for participation with such governmental authority or third-party
payor, and after reasonable and independent inquiry and due diligence and
investigation, NCS has neither received notice nor has any Knowledge or reason
to believe that such necessary authorizations may be revoked or not renewed in
the Ordinary Course of Business.
(x) Rates and Reimbursement Policies. The jurisdiction in which NCS is
located does not currently impose any restrictions or limitations on rates which
may be charged to private pay patients receiving services provided by NCS. NCS
does not have any rate appeal currently pending before any governmental
authority or any administrator of any third-party payor program. No Applicable
Law which affects rates or reimbursement procedures has been enacted,
promulgated or issued within the eighteen (18) months preceding the date of this
Agreement and no such legal requirement is proposed or currently pending in the
jurisdiction in which NCS is located, which could have a material adverse effect
on NCS or may result in the imposition of additional Medicaid, Medicare,
charity, free care, welfare, or other discounted or government assisted patients
at NCS or require NCS to obtain any necessary authorization which NCS does not
currently possess.
(y) Accounts Receivable. All accounts receivable, unbilled invoices and
other debts due or recorded in the respective records and books of account of
NCS, as being due to NCS, (i) are valid, existing and are collectible within one
hundred eighty (180) days following the date of this Agreement without resort to
legal proceedings or use of collection agencies, (ii) have arisen in the
Ordinary Course of Business, and (iii) none of such accounts receivable or other
debts is or will at the Closing Date be subject to any counterclaim or set-off
except to the extent of any such provision or reserve. There has been no
material adverse change since May 31, 1997, in the amount of accounts receivable
or other debts due NCS, the allowances with respect thereto, or accounts payable
of NCS from that reflected in the most recent balance sheet previously delivered
by NCS to SCN.
(z) Guaranties. NCS is not a guarantor and otherwise is not liable for
any liability or obligation (including indebtedness) of any other Person.
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(aa) Powers of Attorney. There are no outstanding powers of attorney
executed by NCS, except as may be contained in financing documents or security
agreements listed in Section 3(i) of the Disclosure Schedule.
(bb) Tangible Assets. NCS owns or leases all land, buildings,
machinery, equipment, and other tangible assets necessary for the conduct of its
business as presently conducted. Each tangible asset is free from defects, has
been maintained in accordance with normal industry practice, and is in good
operating condition and repair (subject to normal wear and tear).
(cc) SCN Share Ownership; Investment Intent.
(i) Neither NCS nor the NCS Stockholder owns, beneficially or
otherwise, any SCN Shares.
(ii) SCN Shares issuable in the Merger are being acquired by
the NCS Stockholder solely for his own account for investment and not
with a view to the distribution thereof, and the NCS Stockholder
acknowledges and understands that the certificate(s) representing such
SCN Shares will bear a legend in substantially the following form:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR UNDER ANY STATE SECURITIES ACT AND CANNOT BE SOLD,
TRANSFERRED, OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER
SUCH ACTS OR UNLESS EXEMPTIONS FROM REGISTRATION ARE
AVAILABLE.
(iii) The NCS Stockholder represents and warrants as follows:
(A) Each NCS Stockholder is an "accredited investor"
as defined under Rule 501 of Regulation D promulgated under
the Securities Act.
(B) The NCS Stockholder confirms that SCN has made
available to him or to his representatives the opportunity to
ask questions of SCN officers and directors and to acquire
such information about the SCN Shares and the business and
financial condition of SCN as the NCS Stockholder requested,
which additional information has been received.
(C) In deciding to acquire SCN Shares pursuant to
this Agreement, the NCS Stockholder consulted with his legal,
financial, and tax advisors with respect to the Merger and the
nature of the investment together with any additional
information provided under subsection (B) above.
(D) Each NCS Stockholder has adequate means of
providing for his current needs and personal contingencies and
has no need for liquidity in his investment in SCN. Each NCS
Stockholder, either alone or with his representatives, has
such knowledge and experience in financial and business
matters that they are capable of evaluating the merits and
risks of the Merger.
(E) The NCS Stockholder understands and acknowledges
that the investment in the SCN Shares is a speculative
investment which involves a high degree risk of loss of such
NCS Stockholder's investment therein; that there are
substantial restrictions on the transferability of the SCN
Shares under the applicable provisions of the Securities Act
and the rules and regulations promulgated thereunder and
applicable state securities or "blue sky" laws; and,
accordingly, that it may not be possible to liquidate an
investment in the SCN Shares.
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<PAGE>
(F) The NCS Stockholder has been advised and
understands that (i) the offer and sale of the SCN Shares have
not been registered under the Securities Act; (ii) the SCN
Shares must held indefinitely and the NCS Stockholder must
continue to bear the economic risk of the investment in the
SCN Shares until the offer or sale of the SCN Shares is
subsequently registered under the Securities Act or any "blue
sky" laws or an exemption from such registration is available;
(iii) Rule 144 promulgated under the Securities Act is not
presently available with respect to the sale of any securities
of SCN, including the SCN Shares, and when and if the SCN
Shares may be disposed of without registration in reliance on
Rule 144, such disposition can be made only in accordance with
the terms and conditions of such Rule; (iv) the restrictive
legends described in Section 3(ac)(ii) shall be placed on the
certificates representing the SCN Shares; and (v) a notation
shall be made in the appropriate records of SCN indicating
that the SCN Shares are subject to restrictions on transfer
and appropriate stop-transfer instructions will be issued to
any transfer agent with respect to the SCN Shares.
(dd) Full Disclosure. No representation or warranty made by NCS in this
Agreement contains or will contain any untrue statement of a material fact or
omits or will omit to state a material fact necessary to make the statements
contained herein or therein not materially misleading.
4. Representations and Warranties of SCN. SCN represents and warrants
to NCS that the statements contained in this Section 4 are correct and complete
as of the date of this Agreement and will be correct and complete as of the
Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Section 4).
(a) Organization. SCN is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Delaware.
(b) Capitalization. As of the date of this Agreement, the entire
authorized capital stock of SCN consists of 50,000,000 SCN Shares, of which
14,662,575 SCN Shares are issued and outstanding and 2,000,000 shares of
preferred stock, none of which are issued and outstanding. All of the SCN Shares
to be issued in the Merger have been duly authorized and, upon consummation of
the Merger, will be validly issued, fully paid, and nonassessable.
(c) Authorization of Transaction. SCN has full power and authority
(including full corporate power and authority) to execute and deliver this
Agreement, to issue the SCN Shares and otherwise to perform its obligations
hereunder; provided, however, that SCN cannot consummate the transaction unless
and until the Merger receives the approval of the SCN Board of Directors. Except
as set forth in the preceding sentence, this Agreement constitutes the valid and
legally binding obligation of SCN, enforceable in accordance with its terms and
conditions.
(d) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge or other restriction of any government,
governmental agency, professional regulatory organization or court to which SCN
is subject or may become subject as a result of the transaction contemplated by
this Agreement, or any provision of the charter or bylaws of SCN or (ii)
conflict with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, modify,
or cancel, or require any notice under any agreement, contract, lease, license,
instrument or other arrangement to which SCN is a party or by which it is bound
or to which any of its assets is subject. Other than state and federal filings
required by the Securities Act and similar state statutes, SCN does not need to
give any notice to, make any filing with, or obtain any authorization, consent,
or approval of any government or governmental agency in order for the Parties to
consummate the transactions contemplated by this Agreement.
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<PAGE>
(e) Brokers' Fees. SCN does not have any liability or obligation to pay
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which SCN could become liable or
obligated.
(f) Securities Filings. All reports and statements filed with respect
to SCN pursuant to the Securities Act or the Securities Exchange Act conform to
the requirements of the Securities Act and the Securities Exchange Act and the
rules and regulations promulgated thereunder and did not include at the time of
filing such document any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading.
5. Covenants. The Parties agree as follows with respect to the period
from and after the execution of this Agreement.
(a) General. Each of the Parties will use its or his best efforts to
take all action and to do all things necessary in order to consummate and make
effective the transactions contemplated by this Agreement (including
satisfaction of the closing conditions set forth in Section 6 below) to be
satisfied by him or it. This paragraph shall not be construed to obligate any of
the Parties to waive any condition precedent to his or its obligations to
perform hereunder.
(b) Notices and Consents. NCS will give any notices to third parties,
and will use its best efforts to obtain any third party consents necessary or
required to consummate the Merger or that SCN reasonably may request in
connection with the matters referred to in Section 3(i) above.
(c) Regulatory Matters and Approvals. Each of the Parties will give any
notices to, make any filings with, and use its reasonable best efforts to obtain
any necessary authorizations, consents, and approvals of governments and
governmental agencies in connection with the transactions contemplated by this
Agreement. Without limiting the generality of the foregoing:
(i) Tax Reporting. The Merger is intended to qualify as a
reorganization under Code Section 368(a)(1)(A). Each of the parties
agrees to report this transaction for all purposes in accordance with
the foregoing.
(ii) Licenses and Permits. Each of the Parties shall have
obtained all licenses and permits necessary to operate their respective
businesses.
(d) Operation of Business. From the date of this Agreement through the
Closing Date, NCS will not engage in any practice, take any action, or enter
into any transaction outside the Ordinary Course of Business. Without limiting
the generality of the foregoing:
(i) NCS will not authorize or effect any change in its charter
documents or bylaws;
(ii) NCS will not grant any options, warrants, or other rights
to purchase or obtain any of its capital stock or issue, sell or
otherwise dispose of any of its capital stock (except upon the
conversion or exercise of options, warrants, and other rights currently
outstanding);
(iii) NCS will not declare, set aside, or pay any dividend or
distribution with respect to its capital stock (whether in cash or in
kind), or redeem, repurchase, or otherwise acquire any of its capital
stock in either case outside the Ordinary Course of Business without
the consent of SCN, which consent shall not be unreasonably withheld;
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<PAGE>
(iv) NCS will not issue any note, bond or other debt security
or create, incur, assume or guarantee any indebtedness for borrowed
money or capitalized lease obligation outside the Ordinary Course of
Business;
(v) NCS will not impose any Security Interest upon any of its
assets outside the Ordinary Course of Business;
(vi) NCS will not make any capital investment in, make any
loan to, or acquire the securities or assets of any other Person
outside the Ordinary Course of Business;
(vii) NCS will not make any change in employment terms for any
of its directors, officers or employees outside the Ordinary Course of
Business; and
(viii) NCS will not commit to do any of the foregoing.
(e) Further Acts and Assurances. NCS and the NCS Stockholder shall, at
any time and from time to time at and after the Effective Time, upon request of
SCN, take any and all steps necessary to place SCN in possession and operating
control of the Practice Assets and to effectuate the Merger, and will do,
execute, acknowledge and deliver, or will cause to be done, executed,
acknowledged and delivered, all such further acts, deeds, assignments,
transfers, conveyances, powers of attorney, and assurances as may be required
for better transferring and confirming to SCN or its successors and assigns, or
for better reducing to possession, any or all of the Practice Assets or
consummating the Merger.
(f) Full Access. Upon three (3) days prior notice, NCS will permit
representatives of SCN to have full access to all premises, properties,
personnel, books, records (including tax records), contracts, and documents of
or pertaining to NCS during normal business hours. SCN will treat and hold as
such any confidential information it receives from NCS in the course of the
reviews contemplated by this Section 5(f), will not use any of the confidential
information except in connection with this Agreement, and, if this Agreement is
terminated for any reason whatsoever, agrees to return to NCS all tangible
embodiments (and all copies) thereof which are in its possession.
(g) Notice of Developments. Each Party will give prompt written notice
to the other Parties of any material adverse development causing a breach of any
of its own representations and warranties in Section 3 or Section 4 above, as
applicable. No disclosure by any Party pursuant to this Section 5(g), however,
shall be deemed to amend or supplement the Disclosure Schedule or to prevent or
cure any misrepresentation, breach of warranty, or breach of covenant.
(h) Exclusivity. Until the earlier of (i) July 31, 1997, or (ii) the
Effective Time, NCS will not solicit, initiate, or encourage the submission of
any proposal or offer from any Person relating to the acquisition of all or
substantially all of the capital stock or assets of NCS (including any
acquisition structured as a merger, consolidation, or share exchange). NCS shall
notify SCN immediately if any Person makes any proposal, offer, inquiry, or
contact with respect to any of the foregoing.
(i) Collection of Accounts Receivable. The NCS Stockholder agrees to
cooperate with SCN in the collection of accounts receivable owned by NCS as of
the Effective Time acquired pursuant to this Agreement. SCN, at its option,
shall have the right to require the collection of said accounts receivable
through a lockbox or bank account sweep arrangement. In connection therewith,
the NCS Stockholder agrees to execute the necessary documents and follow the
necessary procedures as described in the Service Agreement to accommodate the
collection of the accounts receivable in such manner.
(j) Payment of Expenses. On or before the Effective Time, NCS shall
have paid or discharged any and all liabilities or charges for costs or fees
owed as a result of the transaction contemplated by this Agreement.
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<PAGE>
(k) Corporate Authorization. By execution of this Agreement, the NCS
Stockholder agrees to take any and all steps necessary and will do, execute,
acknowledge and deliver, or will cause to be done, executed, acknowledged and
delivered, all such acts, deeds and assurances required in order to consummate
the Merger, including voting as directors of NCS in favor of the Merger and
voting as stockholders of NCS in favor of the Merger at any meetings (or in any
action by written consent) required by the Texas Professional Association Act.
(l) Malpractice Insurance. On or before the Effective Time, all
physicians and employees of NCS must be covered by medical malpractice insurance
and, if required by SCN, medical malpractice tail insurance to cover prior
occurrences shall be procured by NCS.
(m) Distribution of Excluded Assets. Prior to the Effective Time, NCS
shall have distributed to the NCS Stockholder all of the assets listed on
Schedule 5(m), which constitute the entirety of the assets owned by NCS not
being acquired by SCN (the "Excluded Assets").
(n) Satisfaction of Indebtedness. Prior to the Effective Time, NCS
shall have caused the payoff of all liabilities owed to third-parties and all
indebtedness owed to banks or other financial institutions or lenders or shall
have caused the assumption thereof by a new entity organized by the NCS
Stockholder; provided, however, that SCN shall assume payment for (i) all of
NCS's trade payables (rent, utilities, telephone, etc.) incurred by NCS during
the thirty day period prior to the Closing Date and in the Ordinary Course of
Business and (ii) NCS's state franchise tax liability not to exceed, in the
aggregate with the state franchise tax liabilities of Neal C. Small, M.D. &
Associates, P.A., Associated Arthoscopy Institute, Inc., Allied Health Services,
P.A., Alexander I. Glogau, M.D., P.A. and Access Medical Supply, Inc. being
assumed by SCN pursuant to the agreements referred to in Section 6(a)(ix)
below, $160,000. Notwithstanding any contrary provision contained herein, SCN
shall not be deemed to have assumed, nor shall SCN assume: (i) any liability
which may be incurred by reason of any breach of or default under such
contracts, leases, commitments or obligations which occurred prior to the
Closing Date; (ii) any liability for any employee benefits payable to employees
of NCS, including, but not limited to, liabilities arising under any Employee
Benefit Plan or accrued vacation or sick pay; (iii) any liability based upon or
arising out of a violation of any laws by NCS, including, without limiting the
generality of the foregoing, any such liability which may arise in connection
with agreements, contracts, commitments or provision of services by NCS; nor
(iv) any liability based upon or arising out of any tortious or wrongful actions
of NCS or any Physician Owner, or any liability for the payment of any taxes
imposed by law on NCS arising from or by reason of the transactions contemplated
by this Agreement. NCS shall establish a reserve for income, excise or other
taxes to be paid upon the collection of any cash basis accounts receivable
existing on the books of NCS at the Effective Time.
(o) Conversion into Business Corporation. If required by the Texas
Professional Association Act, prior to the Effective Time, the NCS Stockholder
shall have caused the conversion of NCS to a Texas business corporation.
(p) Employee Benefit Plans. Prior to the Effective Time, all Employee
Benefit Plans shall be terminated in accordance with, and to the extent required
by, Applicable Law.
(q) Securities Laws Compliance. No NCS Stockholder shall dispose of the
SCN Shares received as a result of the Merger except in accordance with the
provisions of the Securities Act, the provisions of any rule adopted by the
Securities and Exchange Commission pursuant to the Securities Act and the "blue
sky" laws of any applicable state.
(r) Piggyback Registration.
(i) Notice of Piggyback Registration and Inclusion of SCN
Shares
If within one (1) year from the date of this Agreement SCN
shall elect to file a registration statement ("Registration Statement") on Form
S-2 or S-3 (or any successor form thereto) under the Act with respect to any of
its
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securities, either for its own account or the account of a security holder or
holders, other than a registration on Form S-4 (or its equivalent) in connection
with a reorganization, or a registration relating solely to employee benefit
plans (excluding the foregoing events, a "Registration"), SCN will: (i) promptly
give the NCS Stockholder written notice thereof (which shall include a list of
the jurisdictions in which SCN intends to attempt to qualify such securities
under the applicable Blue Sky or other state securities laws) and (ii) include
in such Registration (and any related registration and/or qualification under
Blue Sky laws or other compliance), and in any underwriting involved therein,
all the SCN Shares specified in a written request delivered to SCN by the NCS
Stockholder within 30 days after delivery of such written notice from SCN.
(ii) Underwriting in Piggyback Registration.
A. Notice of Underwriting in Piggyback Registration
If the Registration of which SCN gives notice is for
a Registered public offering involving an underwriting, SCN shall so advise the
NCS Stockholder as a part of the written notice given above. In such event, the
right of the NCS Stockholder to Registration shall be conditioned upon such
underwriting and the inclusion of the NCS Stockholder's SCN Shares in such
underwriting to the extent provided in this Section. The NCS Stockholder shall
(together with SCN and any other holders distributing their securities through
such underwriting) enter into an underwriting agreement in customary form with
the representative of the Underwriter ("Underwriter's Representative") for such
offering. The NCS Stockholder shall have no right to participate in the
selection of underwriters for an offering pursuant to this Section.
B. Marketing Limitation in Piggyback Registration.
In the event the Underwriter's Representative advises
the NCS Stockholder in writing that market factors (including, without
limitation, the aggregate number of shares of Common Stock requested to be
included in such Registration, the general condition of the market, and the
status of the persons proposing to sell securities pursuant to the Registration)
require a limitation of the number of shares to be underwritten, the
Underwriter's Representative (subject to the allocation priority set forth in
Section 5(r)(ii)C) may limit (or reduce to zero) the number of SCN Shares to be
included in such Registration and underwriting; provided however, that any SCN
Shares so excluded shall retain any and all Registration rights set forth in
this Section.
C. Allocation of SCN Shares in Piggyback
Registration.
In the event that the Underwriter's Representative
limits the number of shares to be included in a Registration pursuant to Section
5(r)(ii)C., the number of shares to be included in such Registration shall be
allocated in the following manner: Common Stock held by persons who are not
contractually entitled to include shares in such Registration shall be excluded
from such Registration and underwriting to the extent required by such
limitation. If a limitation of the number of shares is still required after such
exclusion, the number of shares of Common Stock that may be included in the
Registration and underwriting by all selling shareholders (including the NCS
Stockholder and all other persons contractually entitled to such registration)
shall be allocated among the NCS Stockholder and other holders of securities
other than SCN Shares requesting and contractually entitled to include shares in
such Registration, in proportion, as nearly as practicable, to the respective
amounts of securities (including SCN Shares) which the NCS Stockholder and such
other holders would otherwise be entitled to include in such Registration. No
SCN Shares or other securities excluded from the underwriting by reason of this
Section shall be included in the Registration Statement.
D. Withdrawal in Piggyback Registration.
If the NCS Stockholder disapproves of the terms of
any such underwriting, he may elect to withdraw therefrom by written notice to
SCN and the underwriter delivered at least seven days prior to the effective
date
- 17 -
<PAGE>
of the Registration Statement. Any SCN Shares or other securities excluded or
withdrawn from such underwriting shall be withdrawn from such Registration.
(iii) Blue Sky in Piggyback Registration.
In the event of any Registration of SCN Shares pursuant to
this Section, SCN will use its best efforts to register and/or qualify the
securities covered by the Registration Statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably appropriate for the
distribution of such securities; provided, however, that notwithstanding
anything in this Agreement to the contrary, in the event any jurisdiction in
which the securities shall be qualified imposes a non-waivable requirement that
expenses incurred in connection with the qualification of the securities be
borne by selling Stockholders, the NCS Stockholder shall pay his pro rata share
of such expenses.
6. Conditions to Obligation to Close.
(a) Conditions to Obligation of SCN. The obligation of SCN to
consummate the Merger is subject to satisfaction of the following conditions or
before the Closing Date:
(i) NCS shall have procured all of the third party consents
specified in Section 5(b) above;
(ii) the representations and warranties set forth in Section 3
above shall be true and correct in all material respects at and as of
the Closing Date;
(iii) NCS shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(iv) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency
of any federal, state, local, or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction, judgment, order, decree,
ruling, or charge would (A) prevent consummation of any of the
transactions contemplated by this Agreement, (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation, or (C) affect adversely the right of the Surviving
Corporation to own the former assets or to operate the former business
of NCS;
(v) SCN shall have received the resignations, effective as of
the Closing, of each director and officer of NCS other than those whom
SCN shall have specified in writing prior to the Closing;
(vi) all actions to be taken by NCS and/or the NCS Stockholder
in connection with consummation of the transactions contemplated hereby
and all certificates, opinions, instruments, and other documents
required to effect the transactions contemplated hereby have been taken
or delivered to SCN and are satisfactory in form and substance to SCN;
(vii) the issuance of the SCN Shares to the NCS Stockholder
will not violate federal securities laws or the securities laws of any
state of the United States;
(viii) SCN shall have completed and be satisfied with its due
diligence review, including SCN's review of the Disclosure Schedule;
(ix) on or before the Closing Date the transactions
contemplated by (i) the Asset Purchase Agreement between SCN,
Associated Arthroscopy Institute, Inc., Alexander I. Glogau, M.D. and
Neal C. Small, M.D. dated July 3, 1997, (ii) the Merger Agreement
between SCN, Neal C. Small, M.D. & Associates, P.A. and Neal C. Small,
M.D. dated July 3, 1997, (iii) the Merger Agreement between SCN,
Alexander I. Glogau, M.D., P.A.
- 18 -
<PAGE>
and Alexander I. Glogau, M.D. dated July 3, 1997, (iv) the Asset
Purchase Agreement between SCN, Allied Health Services, P.A. and Neal
C. Small, M.D. dated July 1, 1997 and (v) the Asset Purchase Agreement
between SCN, Access Medical Supply, Inc., Alexander I. Glogau, M.D. and
Neal C. Small, M.D. dated July 3, 1997 shall have been consummated; and
(x) SCN's Board of Directors shall have approved the Merger in
their sole and absolute discretion.
SCN may waive any condition specified in this Section 6(a) if it executes a
writing so stating at or prior to the Closing.
(b) Conditions to Obligation of NCS. The obligation of NCS to
consummate the Merger is subject to satisfaction of the following conditions:
(i) This Agreement and the Merger shall have received the NCS
director and NCS Stockholder's approval required by the Texas
Professional Association Act.
(ii) the representations and warranties set forth in Section 4
above shall be true and correct in all material respects at and as of
the Closing Date;
(iii) SCN shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing; and
(iv) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency
of any federal, state, local or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction, judgment, order, decree,
ruling or charge would (A) prevent consummation of any of the
transactions contemplated by this Agreement, (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation, or (C) affect adversely the right of the Surviving
Corporation to own the former assets of NCS.
NCS may waive any condition specified in this Section 6(b) if it
executes a writing so stating at or prior to the Closing.
7. Items to be Delivered at or Prior to Closing.
(a) By the NCS Stockholder or NCS. The NCS Stockholder or NCS, as
applicable, shall execute and deliver to SCN, prior to or at the Closing:
(i) Certified resolutions of the directors and stockholders of
NCS authorizing the execution of all documents and the consummation of
all transactions contemplated hereby;
(ii) The Texas Articles of Merger which shall be in the form
required by SCN's legal counsel;
(iii) Stock Certificates representing ownership of all shares
of NCS, duly endorsed to SCN;
(iv) A Service Agreement in the form attached hereto as
Exhibit 7(a)(iv);
(v) A certificate duly executed by the President of NCS and
the NCS Stockholder stating as of the Closing Date, all representations
and warranties are true, all covenants and agreements contained in the
Agreement to be performed by NCS and the NCS Stockholder have been
performed or complied with and all conditions to closing have been
complied with;
- 19 -
<PAGE>
(vi) An opinion from NCS's counsel in substantially the form
attached hereto as Exhibit 7(a)(vi);
(vii) Such other instruments as may be reasonably requested by
SCN in order to effect to or carry out the intent of this Agreement.
(b) By SCN. SCN shall deliver to NCS at or prior to the Closing:
(i) Stock Certificates representing the SCN Shares being
issued to the NCS Stockholder pursuant to Section 2(d)(v);
(ii) The Delaware Certificate of Merger in substantially the
form attached hereto as Exhibit 2(a)(1);
(iii) An opinion from SCN's counsel in substantially the form
attached hereto as Exhibit 7(b)(iii);
(iv) A certificate, duly executed by the President of SCN,
stating as of the Closing Date, all representations and warranties of
SCN are true, all covenants and agreements contained in the Agreement
to be performed by SCN have been performed or complied with and all
conditions to Closing have been satisfied;
(v) A Service Agreement in the form attached hereto as Exhibit
7(a)(iv);
(vi) Certified resolutions of SCN authorizing the execution of
all documents and the consummation of all transactions contemplated
thereby;
(vii) The cash payment for any fractional SCN Shares pursuant
to Section 2(e); and
(viii) Such other instruments as may be reasonably requested
by NCS or the NCS Stockholder in order to effect to or carry out the
intent of this Agreement.
8. Termination.
(a) Termination of Agreement. Either of the Parties may terminate this
Agreement with the prior authorization of its board of directors (whether before
or after stockholder approval) as provided below:
(i) the Parties may terminate this Agreement by mutual written
consent at any time prior to the Effective Time;
(ii) SCN may terminate this Agreement by giving written notice
to NCS at any time prior to the Effective Time (A) in the event NCS has
breached any representation, warranty, or covenant contained in this
Agreement in any material respect, SCN has notified NCS of the breach,
and the breach has continued without cure for a period of 30 days after
the notice of breach, (B) if the Closing shall not have occurred on or
before July 31, 1997 by reason of the failure of any condition
precedent under Section 6(a) hereof (unless the failure results
primarily from SCN breaching any representation, warranty, or covenant
contained in this Agreement); or
(iii) NCS may terminate this Agreement by giving written
notice to SCN at any time prior to the Effective Time (A) in the event
SCN has breached any representation, warranty, or covenant contained in
this Agreement in any material respect, NCS has notified SCN of the
breach, and the breach has continued without cure for a period of 30
days after the notice of breach or (B) if the Closing shall not have
occurred on or before July 31, 1997 by reason of the failure of any
condition precedent under Section 6(b) hereof (unless the failure
results primarily from NCS breaching any representation, warranty, or
covenant contained in this Agreement).
- 20 -
<PAGE>
(b) Effect of Termination. If any Party terminates this Agreement
pursuant to Section 8(a) above, all rights and obligations of the Parties
hereunder shall terminate without any liability of any party to any other Party
(except for any liability of any Party then in breach).
9. Indemnification.
(a) Indemnification by the NCS Stockholder. The NCS Stockholder agrees
to and shall defend, indemnify and hold harmless SCN, its successors and
assigns, officers and directors against any and all losses, liabilities,
expenses (including, but without limitation, reasonable attorneys fees) and
damages resulting from or arising out of the breach, untruth or inaccuracy of
any representation, warranty or covenant of NCS or the NCS Stockholder set forth
in this Agreement. The NCS Stockholder shall not be liable to SCN for any claims
against the NCS Stockholder under this Section 9(a) unless and until the
aggregate of all claims against the NCS Stockholder exceeds the sum of
$25,000.00, whereupon SCN shall be entitled to recover the full amount of all
claims, including the initial $25,000.00.
(b) Notice to the NCS Stockholder; Opportunity to Defend. SCN agrees to
give prompt notice to the NCS Stockholder of the assertion of any claim, or the
commencement of any suit, action or proceeding, in respect of which indemnity
may be sought under Section 9(a). The NCS Stockholder may participate in and at
his election or, at the request of SCN, assume the defense of any such suit,
action or proceeding at the NCS Stockholder's expense. The NCS Stockholder shall
not be liable under Section 9(a) for any settlement effected without his consent
of any claim, litigation or proceeding in respect of which indemnity may be
sought under Section 9(a) which consent shall not be unreasonably withheld.
(c) General Indemnification by SCN. SCN agrees to and shall defend,
indemnify and hold harmless the NCS Stockholder, his heirs and assigns against
any and all losses, liabilities, expenses (including, but without limitation,
reasonable attorneys fees) and damages resulting from the breach, untruth or
inaccuracy of any representation, warranty or covenant of SCN set forth in this
Agreement. SCN shall not be liable to the NCS Stockholder for any claims against
SCN under this Section 9(c) unless and until the aggregate of all claims against
SCN exceeds the sum of $25,000.00, whereupon the NCS Stockholder shall be
entitled to recover the full amount of all claims, including the initial
$25,000.00.
(d) Notice to SCN; Opportunity to Defend. The NCS Stockholder agrees to
give prompt notice to SCN of the assertion of any claim, or the commencement of
any suit, action or proceeding in respect of which indemnity may be sought under
Section 9(c). SCN may participate in and at its election, or at the request of
the NCS Stockholder, assume the defense of any such suit, action or proceeding
at SCN's expense. SCN shall not be liable under Section 9(c) for any settlement
effected without its consent of any claim, litigation or proceeding in respect
of which indemnity may be sought hereunder, which consent shall not be
unreasonably withheld.
(e) Right of Setoff. In the event of any breach of warranty,
representation, covenant or agreement by NCS or the NCS Stockholder giving rise
to indemnification to SCN under Section 9(a) hereof, SCN shall be entitled to
offset the amount of damages incurred by it as a result of such breach of
warranty, representation, covenant or agreement against the amounts payable to
the NCS Stockholder or Associated Orthopaedics & Sports Medicine, P.A. under the
Service Agreement. In the event that SCN determines that an amount is to be so
offset, as a condition precedent to such right of setoff, SCN shall give the NCS
Stockholder written notice of the amount of such proposed setoff and the basis
therefor within thirty (30) days after the date on which such amount is finally
determined. If SCN shall not have received written notice from the NCS
Stockholder contesting such setoff within twenty (20) days of their receipt of
such written notice from SCN, the setoff shall be deemed to have been consented
to by the NCS Stockholder, and SCN shall be entitled to deduct the entire amount
claimed as a setoff from the next succeeding amounts payable under the Service
Agreement. In the event that the NCS Stockholder shall object to the proposed
setoff by written notice received by SCN during such twenty (20) day period, the
entitlement of SCN to the claimed setoff shall be determined as set forth in
Section 10.4.3 of the Service Agreement.
- 21 -
<PAGE>
10. Miscellaneous.
(a) Survival. The representations and warranties of the NCS
Stockholder, NCS and SCN contained in this Agreement and the indemnifications
contained herein shall survive the Closing. No claim for indemnification with
respect to any alleged misrepresentation or breach of warranty or covenant may
be made after three (3) years following the Closing Date. Any matter to which
indemnification pertains and with respect to which a claim has been asserted or
threatened following the Closing Date shall continue to be subject to the
indemnification under this Agreement until finally terminated, settled, resolved
or adjudicated; and all terms, conditions and stipulations of this Agreement
shall likewise continue to apply.
(b) No Third-Party Beneficiaries. Except as provided in Section 9(e),
this Agreement shall not confer any rights or remedies upon any Person other
than the parties and their respective successors and permitted assigns.
(c) Entire Agreement. This Agreement (including the documents referred
to herein) constitutes the entire agreement between the parties and supersedes
any prior understandings, agreements, or representations by or between the
parties, written or oral, to the extent they related in any way to the subject
matter hereof.
(d) Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties named herein and their respective successors
and permitted assigns. No party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other Party.
(e) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(f) Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(g) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to NCS: Copy to:
Neal C. Small, M.D. Loren Weinstein
4031 West Plano Parkway 4031 West Plano Parkway
Plano, Texas 75093 Plano, Texas 75093
Facsimile: (972) 964-3469 Facsimile: (972) 964-3469
If to SCN: Copy to:
Kerry R. Hicks, President David T. Popwell, Esq.
Specialty Care Network, Inc. Baker, Donelson, Bearman & Caldwell
44 Union Boulevard, Suite 600 165 Madison Ave, Suite 2100
Lakewood, Colorado 80228 Memphis, Tennessee 38103
Facsimile: (303) 716-1298 Facsimile: (901) 577-2303
- 22 -
<PAGE>
Any party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other party
notice in the manner herein set forth.
(h) Governing Law; Venue. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of Texas without
giving effect to any choice or conflict of law provision or rule (whether of the
State of Texas or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of Texas. Each of the parties
submits to the jurisdiction of any state or federal court sitting in Denver,
Colorado, in any action or proceeding arising out of or relating to this
Agreement and agrees that all claims in respect of the action or proceeding may
be heard and determined in any such court. Each party also agrees not to bring
any action or proceeding arising out of or relating to this Agreement in any
other court. Each of the parties waives any defense of inconvenient forum to the
maintenance of any action or proceeding so brought and waives any bond, surety,
or other security that might be required of any other party with respect
thereto.
(i) Amendments and Waivers. The parties may mutually amend any
provision of this Agreement at any time prior to the Effective Time with the
prior authorization of their respective boards of directors; provided, however,
that any amendment effected subsequent to NCS stockholder approval will be
subject to the restrictions contained in the Texas Professional Association Act.
No amendment of any provision of this Agreement shall be valid unless the same
shall be in writing and signed by both of the parties. No waiver by any party of
any default, misrepresentation, or breach of warranty or covenant hereunder,
whether intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
(j) Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(k) Expenses. Each of the Parties will bear its own costs and expenses
(including legal fees and expenses) incurred in connection with this Agreement
and the transactions contemplated hereby.
(l) Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context otherwise requires. The
word "including" shall mean including without limitation.
(m) No Referrals Required. The Parties agree that no part of this
Agreement shall be construed to induce or encourage the referral of patients or
the purchase of health care services or supplies. The Parties acknowledge that
there is no requirement under this Agreement or any other agreement between the
parties that any party refer any patients to any health care provider or
purchase any health care goods or services from any source. Additionally, no
payment under this Agreement is in return for the referral of patients, if any,
or in return for purchasing, leasing or ordering services from SCN or any of
SCN's affiliates. The Parties may refer patients to any company or person
providing services and will make such referrals, if any, consistent with
professional medical judgment and the needs and wishes of the relevant patients.
- 23 -
<PAGE>
(n) Incorporation of Exhibits and Schedules. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
* * * * *
- 24 -
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
SPECIALTY CARE NETWORK, INC.
By:
-------------------------------
Title:
----------------------------
NEAL C. SMALL, M.D., P.A.
By:
-------------------------------
Title:
----------------------------
-----------------------------------
NEAL C. SMALL, M.D., Stockholder
- 25 -
<PAGE>
MERGER AGREEMENT
BY AND AMONG
SPECIALTY CARE NETWORK, INC.,
ALEXANDER I. GLOGAU, M.D., P.A.,
AND
ALEXANDER I. GLOGAU, M.D.
July 3, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<C> <C>
1. Definitions...................................................................................................1
2. Basic Transaction.............................................................................................4
(a) The Merger..........................................................................................4
(b) The Closing.........................................................................................4
(c) Actions at the Closing..............................................................................4
(d) Effect of Merger....................................................................................4
(e) No Fractional Shares................................................................................5
3. Representations and Warranties of AIG and AIG Stockholder.....................................................5
(a) Organization, Qualification, and Corporate Power....................................................5
(b) AIG Stockholder Interests and Capitalization........................................................5
(c) Authorization of Transaction........................................................................5
(d) Noncontravention....................................................................................5
(e) Subsidiaries and Investments........................................................................6
(f) Financial Statement.................................................................................6
(g) Undisclosed Liabilities.............................................................................6
(h) Brokers' Fees.......................................................................................6
(i) Material Contracts..................................................................................6
(j) Insurance; Malpractice..............................................................................7
(k) No Changes Prior to Closing Date....................................................................7
(l) Title; Condition....................................................................................8
(m) Litigation..........................................................................................8
(n) Permits and Licenses................................................................................8
(o) Tax Matters.........................................................................................8
(p) Employee Benefit Plans..............................................................................8
(q) Third-Party Relations...............................................................................9
(r) Compliance with Applicable Laws.....................................................................9
(s) Employee Compensation..............................................................................10
(t) Environmental Matters..............................................................................10
(u) Healthcare Compliance..............................................................................10
(v) Fraud and Abuse....................................................................................11
(w) Practice Compliance................................................................................11
(x) Rates and Reimbursement Policies...................................................................11
(y) Accounts Receivable................................................................................11
(z) Guaranties.........................................................................................11
(aa) Powers of Attorney................................................................................12
(bb) Tangible Assets...................................................................................12
(cc) SCN Share Ownership; Investment Intent............................................................12
(dd) Full Disclosure...................................................................................13
4. Representations and Warranties of SCN........................................................................13
(a) Organization.......................................................................................13
(b) Capitalization.....................................................................................13
(c) Authorization of Transaction.......................................................................13
(d) Noncontravention...................................................................................13
(e) Brokers' Fees......................................................................................14
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
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<C> <C>
5. Covenants....................................................................................................14
(a) General............................................................................................14
(b) Notices and Consents...............................................................................14
(c) Regulatory Matters and Approvals...................................................................14
(d) Operation of Business..............................................................................14
(e) Further Acts and Assurances........................................................................15
(f) Full Access........................................................................................15
(g) Notice of Developments.............................................................................15
(h) Exclusivity........................................................................................15
(i) Collection of Accounts Receivable..................................................................15
(j) Payment of Expenses................................................................................15
(k) Corporate Authorization............................................................................16
(l) Malpractice Insurance..............................................................................16
(m) Distribution of Excluded Assets....................................................................16
(n) Satisfaction of Indebtedness.......................................................................16
(o) Conversion into Business Corporation...............................................................16
(p) Employee Benefit Plans.............................................................................16
(q) Securities Laws Compliance.........................................................................16
6. Conditions to Obligation to Close............................................................................18
(a) Conditions to Obligation of SCN....................................................................18
(b) Conditions to Obligation of AIG....................................................................19
7. Items to be Delivered at or Prior to Closing.................................................................19
(a) By the AIG Stockholder or AIG......................................................................19
(b) By SCN.............................................................................................20
8. Termination..................................................................................................20
(a) Termination of Agreement...........................................................................20
(b) Effect of Termination..............................................................................21
9. Indemnification..............................................................................................21
(a) Indemnification by the AIG Stockholder.............................................................21
(b) Notice to the AIG Stockholder; Opportunity to Defend...............................................21
(c) General Indemnification by SCN.....................................................................21
(d) Notice to SCN; Opportunity to Defend...............................................................21
(e) Right of Setoff....................................................................................21
10. Miscellaneous...............................................................................................22
(a) Survival...........................................................................................22
(b) No Third-Party Beneficiaries.......................................................................22
(c) Entire Agreement...................................................................................22
(d) Succession and Assignment..........................................................................22
(e) Counterparts.......................................................................................22
(f) Headings...........................................................................................22
(g) Notices............................................................................................22
(h) Governing Law; Venue...............................................................................23
</TABLE>
PH02/184266.1
ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<C> <C>
(i) Amendments and Waivers.............................................................................23
(j) Severability.......................................................................................23
(k) Expenses...........................................................................................23
(l) Construction.......................................................................................24
(n) Incorporation of Exhibits and Schedules............................................................24
</TABLE>
<TABLE>
<S> <C>
EXHIBIT 1 AGREEMENT AND PLAN OF MERGER.................................................Exhibit 1-1
- ---------
EXHIBIT 2(a)(1) CERTIFICATE OF MERGER..................................................Exhibit 2(a)(1)-1
- ---------------
EXHIBIT 2(a)(2) TEXAS ARTICLES OF MERGER...............................................Exhibit 2(a)(2)-1
- ---------------
EXHIBIT 7(a)(iv) SERVICE AGREEMENT.............................................................7(a)(iv)-1
- ---------------- -----------------
EXHIBIT 7(a)(vi) AIG OPINION LETTER....................................................Exhibit 7(a)(vi)-1
- ---------------- ------------------
EXHIBIT 7(b)(iii) SCN OPINION LETTER...................................................Exhibit 7(b)(iii)-1
- ----------------- ------------------
</TABLE>
iii
<PAGE>
MERGER AGREEMENT
----------------
THIS MERGER AGREEMENT (this "Agreement") is entered into this the 3rd
day of July, 1997, by and among SPECIALTY CARE NETWORK, INC., a Delaware
corporation ("SCN"), ALEXANDER I. GLOGAU, M.D., P.A., a Texas professional
association ("AIG"), and ALEXANDER I. GLOGAU, M.D. (the "AIG Stockholder"). SCN,
AIG and the AIG Stockholder are referred to collectively herein as the
"Parties."
W I T N E S S E T H:
--------------------
WHEREAS, SCN and AIG have determined that it is desirable and in the
best interests of their respective corporations and stockholders that AIG merge
with and into SCN, with SCN as the surviving corporation, on the terms and
subject to the conditions set forth in this Agreement and the corresponding
Agreement and Plan of Merger in the form attached hereto as Exhibit 1 (the
"Agreement and Plan of Merger");
WHEREAS, SCN and AIG intend that the transaction contemplated by this
Agreement shall qualify as a tax-free reorganization under Section 368(a)(1)(A)
of the Internal Revenue Code of 1986, as amended (the "Code") and intend that
this Agreement along with the Agreement and Plan of Merger shall constitute a
"plan of reorganization" within the meaning of Section 368 of the Code;
WHEREAS, the Parties do not intend for this Agreement to be a binding
obligation of any Party unless and until the provisions of Section 6 are
satisfied or waived by the appropriate party; and
WHEREAS, the Parties desire to set forth in writing the terms and
conditions under which said transaction will be consummated.
NOW, THEREFORE, in consideration of the foregoing and of the
representations, warranties, covenants and agreements set forth herein, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged by the Parties, and in accordance with the applicable
provisions of the Delaware General Corporation Law and the Professional
Association Act, the parties hereby agree as follows:
1. Definitions.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Agreement" has the meaning set forth in the preface above.
"Agreement and Plan of Merger" has the meaning set forth in the first
recital above.
"Applicable Laws" has the meaning set forth in Section 3(r).
"Texas Articles of Merger" has the meaning set forth in Section 2(a)
below.
"Texas Professional Association Act" means the Professional Association
Act of the State of Texas, as amended.
"Closing Date" has the meaning set forth in Section 2(b) below.
"Closing" has the meaning set forth in Section 2(b) below.
<PAGE>
"Code" has the meaning set forth in the recitals above.
"Conversion Ratio" has the meaning set forth in Section 2(d)(v) below.
"Delaware Certificate of Merger" shall have the meaning set forth in
Section 2(a) below.
"Delaware General Corporation Law" means the General Corporation Law of
the State of Delaware, as amended.
"Disclosure Schedule" has the meaning set forth in Section 3 below.
"AIG" has the meaning set forth in the preface above.
"AIG Share" means any share of the issued and outstanding common stock
of AIG at the date of this Agreement.
"AIG Stockholder" has the meaning set forth in the preface above.
"Effective Time" has the meaning set forth in Section 2(d)(i) below.
"Employee Benefit Plans" has the meaning set forth in Section 3(p)(i)
below.
"Environmental Laws" means all federal, state, and local laws, rules,
regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and
charges thereunder and other governmental requirements relating to pollution,
control of chemicals, storage and handling of petroleum products, management of
waste (including biohazardous or biomedical waste), discharges of materials into
the environment, health, safety, natural resources, and the environment,
including laws relating to emissions, discharges, releases, or threatened
releases of pollutants, contaminants, or chemical, industrial, hazardous, or
toxic materials or wastes into ambient air, surface water, ground water, or
lands or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling of pollutants,
contaminants, or chemical, industrial, hazardous, or toxic materials or wastes.
"ERISA" has the meaning set forth in Section 3(p)(i) below.
"Excluded Assets" has the meaning set forth in Section 5(m) below.
"GAAP" means United States generally accepted accounting principles as
in effect from time to time.
"Hazardous Materials" has the meaning set forth in Section 3(t) below.
"IRS" means the Internal Revenue Service.
"Knowledge" means actual knowledge after reasonable investigation.
"Medical Waste" includes, but is not limited to, pathological waste,
blood, sharps, wastes from surgery or autopsy, dialysis waste, including
contaminated disposable equipment and supplies, cultures and stock of infectious
agents and associated biological agents, contaminated animals, isolation wastes,
contaminated equipment, laboratory waste, various other biological waste and
discarded materials contaminated with or exposed to blood, excretion or
secretion from human beings or animals, and any substance, pollutant, material
or contaminant listed or regulated under the Medical Waste Tracking Act of 1988,
42 U.S.C. ss.ss. 6992, et seq.
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<PAGE>
"Medical Waste Law" means the Medical Waste Tracking Act of 1988, as
amended, the U.S. Public Vessel Medical Waste Anti-Dumping Act of 1988, 33
U.S.C.A. ss.ss. 2501, et seq., the Marine Protection, Research and Sanctuaries
Act of 1972, 33 U.S.C.A. ss.ss. 1401, et seq., the Occupational Safety and
Health Act, 29 U.S.C.A. ss.ss. 651, et seq., the United States Department of
Health and Human Services, National Institute for Occupational Self-Safety and
Health Infectious Waste Disposal Guidelines, Publication No. 88-119, all
regulations and orders issued pursuant to any of the foregoing, and any other
federal, state, regional, county, municipal or other local laws, regulations and
ordinances insofar as they purport to regulate Medical Waste or impose
requirements relating to Medical Waste.
"Merger" has the meaning set forth in Section 2(a) below.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice.
"Parties" has the meaning set forth in the preface above.
"PBGC" has the meaning set forth in Section 3(p)(ii) below.
"PCBs" has the meaning set forth in Section 3(t) below.
"Person" means an individual, a partnership, a limited liability
company, a corporation, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization, or a governmental entity (or any
department, agency, or political subdivision thereof).
"Practice Assets" has the meaning set forth in Section 3(l) below.
"SCN Share" means any share of the common stock, $.001 par value per
share, of SCN.
"SCN" has the meaning set forth in the preface above.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance,
charge or other security interest other than (a) mechanic's, materialmen's, and
similar liens, (b) liens for taxes not yet due and payable or for taxes that the
taxpayer is contesting in good faith through appropriate proceedings, (c)
purchase money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.
"Service Agreement" shall mean that certain Service Agreement dated as
of the Closing Date by and among SCN, Associated Orthopaedics & Sports Medicine,
P.A., Neal C. Small, M.D., and the AIG Stockholder to be executed and delivered
at the Closing.
"Subsidiary" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) owns a majority of the common stock or has the
power to vote or direct the voting of sufficient securities to elect a majority
of the directors.
"Surviving Corporation" has the meaning set forth in Section
2(a) below.
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<PAGE>
2. Basic Transaction.
(a) The Merger. On and subject to the terms and conditions of this
Agreement, AIG will merge with and into SCN (the "Merger") at the Effective
Time. SCN shall enter into the Agreement and Plan of Merger upon adoption of the
Agreement and Plan of Merger by the Board of Directors of SCN and the
satisfaction or waiver of the conditions precedent to SCN's obligations set
forth in this Agreement. AIG shall enter into the Agreement and Plan of Merger
upon adoption of the Agreement and Plan of Merger by the Board of Directors of
AIG and the AIG Stockholder and the satisfaction or waiver of the conditions
precedent to AIG's obligation set forth in this Agreement. Upon all other
conditions herein being satisfied or waived in accordance with the terms of this
Agreement, a Certificate of Merger in substantially the form attached hereto as
Exhibit 2(a)(1) (the "Delaware Certificate of Merger") shall be executed and
filed with the Secretary of State of the State of Delaware and Secretary of
State of the State of Texas in substantially the form attached hereto as Exhibit
2(a)(2) (the "Texas Articles of Merger")shall be executed and filed with the
Secretary of State of the State of Texas , together with all certificates or
documents as may be required to be filed under the laws of the State of Delaware
and the State of Texas to effect the Merger. Thereafter, the separate corporate
existence of AIG shall cease and AIG shall be merged with and into SCN (the
"Surviving Corporation").
(b) The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of AIG, 4031 West
Plano Parkway, Plano, Texas 75093 commencing at 9:00 A.M. local time on the
second business day following the day on which the last of the conditions set
forth in Section 6 have been fulfilled or waived, or such other date or place as
the Parties may mutually determine (the "Closing Date"). Time is of the essence
for this Agreement.
(c) Actions at the Closing. At the Closing, (i) AIG will deliver to SCN
the various certificates, instruments, and documents referred to in Section 7(a)
below, (ii) SCN will deliver to AIG the various certificates, instruments, and
documents referred to in Section 7(b) below, (iii) SCN and AIG will file with
the Secretary of State of the State of Delaware the Delaware Certificate of
Merger, and (iv) SCN and AIG will file with the Secretary of State of the State
of Texas the Texas Articles of Merger.
(d) Effect of Merger.
(i) General. The Merger shall become effective at the time
(the "Effective Time") SCN and AIG file the Delaware Certificate of
Merger with the Secretary of State of the State of Delaware and file
the Texas Articles of Merger with the Secretary of State of the State
of Texas. The Merger shall have the effect set forth in the Delaware
General Corporation Law and the Texas Professional Association Act. The
Surviving Corporation may, at any time after the Effective Time, take
any action (including executing and delivering any document) in the
name and on behalf of either SCN or AIG in order to carry out and
effectuate the transactions contemplated by this Agreement.
(ii) Certificate of Incorporation. The Certificate of
Incorporation of SCN in effect at and as of the Effective Time will
remain the Certificate of Incorporation of the Surviving Corporation
without any modification or amendment as a result of the Merger.
(iii) Bylaws. The Bylaws of SCN in effect at and as of the
Effective Time will remain the Bylaws of the Surviving Corporation
without any modification or amendment as a result of the Merger.
(iv) Directors and Officers. The directors and officers of SCN
in office at and as of the Effective Time will remain the directors and
officers of the Surviving Corporation (retaining their respective
positions and terms of office).
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<PAGE>
(v) Conversion of AIG Shares. At and as of the Effective Time,
each of the issued and outstanding AIG Shares shall be converted into
(A) the right to receive 90.78 SCN Shares (the ratio of 90,780 SCN
Shares divided by the total number of AIG Shares outstanding is
referred to herein as the "Conversion Ratio") and (B) the right to
receive a cash payment of $403.125. The Conversion Ratio shall be
subject to equitable adjustment in the event of any stock split, stock
dividend, reverse stock split, or other change in the number of AIG
Shares or SCN Shares outstanding.
(vi) SCN Shares. Each SCN Share issued and outstanding at and
as of the Effective Time will remain issued and outstanding and shall
be unaffected by the Merger.
(e) No Fractional Shares. No fractional SCN Shares shall be issued
pursuant to the Merger. In lieu of the issuance of any such fractional SCN
Shares, cash adjustments will be paid to holders in respect of any fractional
SCN Shares that would otherwise be issuable. The amount of such adjustment shall
be the product of such fraction of a SCN Share multiplied by $11.75.
3. Representations and Warranties of AIG and AIG Stockholder. AIG and
the AIG Stockholder, jointly and severally, represent and warrant to SCN that
the statements contained in this Section 3 are correct and complete as of the
date of this Agreement and will be correct and complete as of the Closing Date
(as though made then and as though the Closing Date were substituted for the
date of this Agreement throughout this Section 3), except as set forth in the
disclosure schedule (the "Disclosure Schedule"). The Disclosure Schedule will be
arranged in paragraphs corresponding to the lettered and numbered paragraphs
contained in this Section 3.
(a) Organization, Qualification, and Corporate Power. AIG is a
professional association duly organized, validly existing, and in good standing
under the laws of the State of Texas. AIG is duly authorized to conduct
business and is in good standing under the laws of each jurisdiction in which
the character or location of the properties owned or the business conducted by
AIG makes such qualification necessary. AIG has the full corporate power and
authority to carry on the business in which it is engaged and to own and use the
properties owned and used by it.
(b) AIG Stockholder Interests and Capitalization. The capital stock of
AIG is owned in the manner set forth in Section 3(b) of the Disclosure Schedule.
All of the issued and outstanding AIG Shares have been duly authorized and are
validly issued, fully paid, and nonassessable. There are no outstanding or
authorized options, warrants, purchase rights, subscription rights, conversion
rights, exchange rights or other contracts or commitments that could require AIG
to issue, sell or otherwise cause to become outstanding any of its capital
stock. There are no outstanding or authorized stock appreciation, phantom stock,
profit participation, or similar rights with respect to AIG. As of the date of
this Agreement, the authorized capital stock of AIG consists of 1,000 shares of
AIG common stock, of which 1,000 shares were issued and outstanding.
(c) Authorization of Transaction. AIG has the full corporate power and
authority to execute and deliver this Agreement and to perform its obligations
hereunder. This Agreement constitutes the valid and legally binding obligation
of AIG and the AIG Stockholder, enforceable in accordance with its terms and
conditions.
(d) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge or other restriction of any government,
governmental agency, professional regulatory organization or court to which AIG
is subject or any provision of the charter or bylaws of AIG or (ii) conflict
with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, modify,
or cancel, or require any notice under any agreement, contract, lease, license,
instrument or other arrangement to which AIG is a party or by which it is bound
or to which any of its assets is subject (or result in the imposition of any
Security Interest upon any of its assets). AIG is not required to give any
notice to, make any filing
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<PAGE>
with, or obtain any authorization, consent, or approval of any government or
governmental agency in order for the Parties to consummate the transactions
contemplated by this Agreement.
(e) Subsidiaries and Investments. AIG does not own, directly or
indirectly, any capital stock or other equity ownership or proprietary interest
in any other corporation, partnership, association, limited liability company,
trust, joint venture or other entity.
(f) Financial Statements. AIG has furnished SCN with unaudited balance
sheets dated December 31, 1995 and 1996 and May 31, 1997 and unaudited income
statements for the twelve (12) month periods ending December 31, 1996, 1995 and
1994 and the five (5) months ended May 31, 1997. Such financial statements,
including the notes thereto, except as indicated therein, were prepared on a
basis consistent with past accounting practices of AIG and fairly present the
results of operations for the periods noted therein. The balance sheets of AIG
delivered by AIG to SCN fairly present the financial condition of AIG at the
date thereof, and except as indicated therein, reflect all claims against and
all debts and liabilities of AIG, fixed or contingent, as of the date thereof.
(g) Undisclosed Liabilities. AIG has no uninsured liability (whether
known or unknown, asserted or unasserted, absolute or contingent, accrued or
unaccrued, liquidated or unliquidated, and whether due or to become due),
including any liability for taxes, except for (i) liabilities set forth on the
face of the balance sheet dated as of December 31, 1996 and (ii) liabilities
which have arisen after December 31, 1996 in the Ordinary Course of Business
(none of which results from, arises out of, relates to, is in the nature of, or
was caused by any breach of contract, breach of warranty, tort, infringement, or
violation of law).
(h) Brokers' Fees. AIG does not have any liability or obligation to pay
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement.
(i) Material Contracts. Section 3(i) of the Disclosure Schedule lists
the following contracts and other material agreements to which AIG is a party:
(i) any agreement (or group of related agreements) for the
lease of real or personal property to or from any Person;
(ii) any agreement (or group of related agreements) for the
purchase or sale of supplies, products, or other personal property or
for the furnishing or receipt of services;
(iii) any agreement concerning a partnership, limited
liability company or joint venture;
(iv) any agreement (or group of related agreements) under
which AIG has created, incurred, assumed, or guaranteed any
indebtedness for borrowed money, or any capitalized lease obligation
pursuant to which it has imposed a Security Interest in respect of any
of its assets, tangible or intangible;
(v) any agreement concerning confidentiality or
noncompetition;
(vi) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other plan or
arrangement for the benefit of AIG's current or former directors,
officers, and employees;
(vii) any agreement for the employment of any individual on a
full-time, part-time, consulting, or other basis providing annual
compensation in excess of $25,000 or providing severance benefits;
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<PAGE>
(viii) any agreement pursuant to which AIG has advanced or
loaned any amount to any of its directors, officers, and employees;
(ix) any agreement pursuant to which the consequences of a
default or termination could have a material adverse effect on the
business, financial condition, operations, results of operations, or
future prospects of AIG;
(x) any third-party provider agreement; or
(xi) any other agreement (or group of related agreements)
outside the ordinary course of AIG's business or operations the
performance of which involves consideration in excess of $15,000.
AIG has delivered or given SCN access to a correct and complete copy of each
written agreement listed in Section 3(i) of the Disclosure Schedule (as amended
through the Closing Date) and a written summary setting forth the terms and
conditions of each oral agreement referred to in Section 3(i) of the Disclosure
Schedule. With respect to each such agreement: (A) the agreement is legal,
valid, binding, enforceable, and in full force and effect; (B) except as set
forth in Section 3(i) of the Disclosure Schedule, no notice of this Agreement or
consent of any third party is required in order for AIG to execute and deliver
this Agreement or to consummate the transactions contemplated hereby, and, after
assignment to SCN at Closing, the agreement will continue to be legal, valid,
binding, enforceable, and in full force and effect on identical terms; (C) no
party is in breach or default, and no event has occurred which with notice or
lapse of time would constitute a breach or default, or permit termination,
modification, or acceleration, under the agreement; and (D) no party has
repudiated any provision of the agreement.
(j) Insurance; Malpractice. Section 3(j) of the Disclosure Schedule
contains a list and brief description of all policies or binders of fire,
liability, product liability, workers compensation, health and other forms of
insurance policies or binders currently in force insuring against risks which
will remain in full force and effect at least through the Closing Date. Section
3(j) of the Disclosure Schedule contains a description of all current
malpractice liability insurance policies of AIG Stockholder, AIG and AIG's
professional employees and all predecessor policies in effect since February 1,
1990. Neither AIG, the AIG Stockholder, nor AIG's professional employees have,
in the last seven (7) years, filed a written application for any insurance
coverage relating to AIG's business or property which has been denied by an
insurance agency or carrier. AIG, AIG's professional employees and the AIG
Stockholder have been continuously insured for professional malpractice claims
during the same period. Section 3(j) of the Disclosure Schedule also sets forth
a list of all claims for any insured loss in excess of Five Thousand Dollars
($5,000.00) per occurrence filed by or against AIG, AIG's professional employees
or the AIG Stockholder during the three (3) year period immediately preceding
the date hereof, including workers compensation, general liability,
environmental liability and professional malpractice liability claims. None of
AIG, AIG's professional employees or the AIG Stockholder is in material default
with respect to any provision contained in any such policy and none of them has
failed to give any notice or present any claim under any such policy in due and
timely fashion.
(k) No Changes Prior to Closing Date. During the period from December
31, 1996 through the date hereof, AIG has not (i) incurred any liability or
obligation of any nature (whether known or unknown, asserted or unasserted,
absolute or contingent, accrued or unaccrued, liquidated or unliquidated and
whether due or to become due), except in the Ordinary Course of Business, (ii)
written off as uncollectible any notes or accounts receivable, except write-offs
in the Ordinary Course of Business charged to applicable reserves, none of which
individually or in the aggregate is material to AIG, (iii) conducted its
business in such a manner so as to materially increase its accounts payable or
so as to materially decrease its accounts receivable, (iv) granted any increase
in the rate of wages, salaries, bonuses, or other remunerations of any employee,
except in the Ordinary Course of Business, (v) canceled or waived any claims or
rights of substantial value, (vi) made any change in any method of accounting,
(vii) otherwise conducted its business or entered into any transaction, except
in the usual and ordinary manner and in the Ordinary Course of Business, (viii)
agreed,
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<PAGE>
whether or not in writing, to do any of the foregoing, or (ix) disposed of its
assets other than in the Ordinary Course of Business.
(l) Title; Condition. Section 3(l) of the Disclosure Schedule contains
a complete, true and correct list of those assets which are material to the
business or operations of AIG (the "Practice Assets"). AIG has good and
marketable title to all of the Practice Assets subject to no mortgage, pledge,
lien, lease, conditional sales agreement, option, right of first refusal or any
other encumbrance or charge, including taxes. AIG agrees to remove all security
interests reflected on any search of public records, if any, prior to the
Effective Time and remove any other security interest filed with respect to the
Practice Assets between the date of such search of public records and the
Effective Time.
(m) Litigation. There is no suit, action, proceeding at law or in
equity, arbitration, administrative proceeding or other proceeding or
investigation by any governmental entity pending, or threatened against, or
affecting AIG or any of the Practice Assets, or any physician or other health
care professional engaged or employed by AIG, and there is no basis for any of
the foregoing. None of the actions, suits, proceedings, hearings, and
investigations set forth in Section 3(m) of the Disclosure Schedule could result
in any material adverse change in the operations, results of operations, or
future prospects of the business assets to be operated by SCN after the Closing.
(n) Permits and Licenses. AIG and all physicians and other health care
professionals engaged or employed by AIG have all permits and licenses required
by all applicable laws; have made all regulatory filings necessary for the
conduct of AIG's business; and are not in violation of any of said permitting or
licensing requirements.
(o) Tax Matters. All federal, state and other tax returns of AIG
required by law to be filed have been timely filed, and AIG has paid or
adequately provided for all taxes (including taxes on properties, income,
franchises, licenses, sales and payrolls) which have become due pursuant to such
returns or pursuant to any assessment, except for any taxes and assessments, the
amount, applicability or validity of which is currently being contested in good
faith by appropriate proceedings and with respect to which AIG has set aside on
its books adequate reserves. There are no tax liens on any of AIG's assets
except those with respect to taxes not yet due and payable. There are no pending
tax examinations of AIG's tax returns nor has AIG received a revenue agent's
report asserting a tax deficiency in the last twelve (12) months. There are not
and will not be at the Closing Date, any claims pending or asserted against AIG
for unpaid taxes by any federal, state or other governmental body. AIG has
withheld from each payment made to employees of AIG the amount of all taxes
(including, but not limited to, federal, state and local income taxes and
Federal Insurance Contribution Act taxes) required to be withheld therefrom and
all amounts customarily withheld therefrom, and has set aside all other employee
contributions or payments customarily set aside with respect to such wages and
has paid or will pay the same to, or has deposited or will deposit such payment
with, the proper tax receiving officers or other appropriate authorities.
(p) Employee Benefit Plans.
(i) List of Plans. Section 3(p) of the Disclosure Schedule
contains an accurate and complete list of all employee benefit plans
("Employee Benefit Plans") within the meaning of Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
whether or not any Employee Benefit Plans are otherwise exempt from the
provisions of ERISA, established, maintained or contributed to by AIG
(including all employers (whether or not incorporated) which by reason
of common control are treated together with AIG and/or the AIG
Stockholder as a single employer within the meaning of Section 414 of
the Code) since September 2, 1974.
(ii) Status of Plans. AIG has never maintained and does not
now maintain or contribute to any Employee Benefit Plan subject to
ERISA which is not in substantial compliance with ERISA, or which has
incurred any accumulated funding deficiency within the meaning of
Section 412 or 418B of the Code, or which has applied for or obtained a
waiver from the Internal Revenue Service of any minimum funding
requirement under Section 412 of the Code or which is subject to Title
IV of
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ERISA. AIG has not incurred any liability to the Pension Benefit
Guaranty Corporation ("PBGC") in connection with any Employee Benefit
Plan covering any employees of AIG or ceased operations at any facility
or withdrawn from any such Plan in a manner which could subject it to
liability under Section 4062(f), 4063 or 4064 of ERISA, and knows of no
facts or circumstances which might give rise to any liability of AIG to
the PBGC under Title IV of ERISA which could reasonably be anticipated
to result in any claims being made against AIG by the PBGC. AIG has not
incurred any withdrawal liability (including any contingent or
secondary withdrawal liability) within the meaning of Sections 4201 and
4202 of ERISA, to any Employee Benefit Plan which is a Multiemployer
Plan (as defined in Section 4001 of ERISA), and no event has occurred,
and there exists no condition or set of circumstances, which represent
a material risk of the occurrence of any withdrawal from or the
partition, termination, reorganization or insolvency of any
Multiemployer Plan which would result in any liability of AIG.
(iii) Contributions. Full payment has been made of all amounts
which AIG is required, under applicable law or under any Employee
Benefit Plan or any agreement relating to any Employee Benefit Plan to
which AIG is a party, to have paid as contributions thereto as of the
last day of the most recent plan year of such Employee Benefit Plan
ended prior to the date hereof. AIG has made adequate provision for
reserves to meet contributions that have not been made because they are
not yet due under the terms of any Employee Benefit Plan or related
agreements. Benefits under all Employee Benefit Plans are as
represented and have not been increased subsequent to the date as of
which documents have been provided.
(iv) Tax Qualification. Each Employee Benefit Plan intended to
be qualified under Section 401(a) of the Code has been determined to be
so qualified by the Internal Revenue Service and nothing has occurred
since the date of the last such determination which resulted or is
likely to result in the revocation of such determination.
(v) Transactions. AIG has not engaged in any transaction with
respect to the Employee Benefit Plans which would subject it to a
material tax, penalty or liability for prohibited transactions under
ERISA or the Code nor have any of its directors, officers or employees
to the extent they or any of them are fiduciaries with respect to such
plans, breached any of their responsibilities or obligations imposed
upon fiduciaries under Title I of ERISA which would result in any
material claim being made under or by or on behalf of any such plans by
any party with standing to make such claim.
(vi) Other Plans. AIG presently does not maintain any Employee
Benefit Plans or any other foreign pension, welfare or retirement
benefit plans other than those listed on Section 3(p) of the Disclosure
Schedule.
(vii) Documents. AIG has delivered or caused to be delivered
to SCN true and complete copies of (i) all Employee Benefit Plans as in
effect, together with all amendments thereto which will become
effective at a later date, as well as the latest IRS determination
letter obtained with respect to any such Employee Benefit Plan
qualified under Section 401 or 501 of the Code, and (ii) the most
recently filed Form 5500 for each Employee Benefit Plan required to
file such form.
(q) Third-Party Relations. AIG has not received any notice that any
material patient, supplier, employee or associated physician intends to cease
doing business with AIG.
(r) Compliance with Applicable Laws. AIG has operated in compliance
with all federal, state, county and municipal laws, constitutions, ordinances,
statutes, rules, regulations and orders applicable thereto ("Applicable Laws").
No item disclosed in Section 3(r) of the Disclosure Schedule could have a
material effect on SCN. Neither AIG nor any
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physician associated with or employed by AIG has received payment or any
remuneration whatsoever to induce or encourage the referral of patients or the
purchase of goods and/or services as prohibited under 42 U.S.C. ss. 1320a-7b(b),
or otherwise perpetrated any Medicare or Medicaid fraud or abuse nor has any
fraud or abuse been alleged within the last five (5) years by any government
agency.
(s) Employee Compensation. AIG has paid or discharged or will pay or
discharge or assume all liabilities for compensation and benefits to which all
employees, including physician employees, are entitled through the Closing Date,
including but not limited to all salaries, wages, bonuses, incentive
compensation, payroll taxes, hospitalization and medical expenses, deferred
compensation, and vacation and sick pay, as well as any severance pay becoming
due as a result of the termination of AIG's employees.
(t) Environmental Matters.
(i) AIG is in full compliance with all applicable
Environmental Laws.
(ii) AIG has not authorized or conducted the disposal or
release, or other handling of any hazardous substance, Medical Waste,
hazardous waste, hazardous material, hazardous constituent, toxic
substance, pollutant, contaminant, asbestos, radon, polychlorinated
biphenyls ("PCBs"), petroleum product or waste (including crude oil or
any fraction thereof), natural gas, liquefied gas, synthetic gas,
biohazardous or biomedical material, or other material defined,
regulated controlled or potentially subject to any remediation
requirement under any Environmental Law (collectively "Hazardous
Materials"), on, in, under or affecting any property owned or leased by
AIG.
(iii) AIG has, and is in compliance with, all licenses,
permits, registrations, and government authorizations necessary to
operate under all applicable Environmental Laws. Section 3(t) of the
Disclosure Schedule lists all such licenses, permits, registrations and
government authorizations required by any Environmental Law.
(iv) AIG has not received any written or oral notice from any
governmental agency or entity or any other Person and there is no
pending or threatened claim, litigation or any administrative agency
proceeding that: (a) alleges a violation of any Environmental Law(s) by
AIG or, with respect to the Practice Assets or any property owned or
leased by AIG (b) alleges that AIG is a liable party or potentially
responsible party under the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. ss. 9601, et seq., or any
analogous state law, (c) has resulted or could result in the attachment
of an environmental lien on any of the Practice Assets or property
owned or leased by AIG, or (d) alleges that AIG is liable for any
contamination of the environment, contamination of any property owned
or leased by AIG, damage to natural resources, property damage, or
personal injury based on its activities or the activities of any
predecessor or third parties involving Hazardous Materials, whether
arising under the Environmental Laws, common law principles, or other
legal standards.
(v) With respect to the generation, transportation, treatment,
storage and disposal or other handling of Medical Waste, AIG has
complied with all Medical Waste Laws.
(u) Healthcare Compliance. AIG is participating in or otherwise
authorized to receive reimbursement from Medicare and Medicaid and is a party to
other third-party payor agreements if any, discussed in Section 3(i) of the
Disclosure Schedule. All necessary certifications and contracts required for
participation in such programs are in full force and effect and have not been
amended or otherwise modified, rescinded, revoked or assigned, and no condition
exists or event has occurred which in itself or with the giving of notice or the
lapse of time or both would result in the suspension, revocation, impairment,
forfeiture or non-renewal of any such third-party payor program. AIG is in
compliance in all material respects with the requirements of all such
third-party payors. AIG, the AIG Stockholder, and
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AIG's physician employees do not have any financial relationship (whether
investment interest, compensation interest, or otherwise) with any entity to
which any of the foregoing refer patients, except for such financial
relationships that qualify for exceptions to state and federal laws restricting
physician referrals to entities in which they have a financial interest.
(v) Fraud and Abuse. AIG, the AIG Stockholder and persons and entities
providing professional services for AIG have not engaged in any activities which
are prohibited under 42 U.S.C. ss. 1320a-7b, or the regulations promulgated
thereunder pursuant to such statutes, or related state or local statutes or
regulations, or which are prohibited by rules of professional conduct, including
the following: (a) knowingly and willfully making or causing to be made a false
statement or representation of a material fact in any application for any
benefit or payment; (b) knowingly and willfully making or causing to be made any
false statement or representation of a material fact for use in determining
rights to any benefit or payment; (c) failing to disclose knowledge by a
claimant of the occurrence of any event affecting the initial or continued right
to any benefit or payment on its own behalf or on behalf of another, with intent
to fraudulently secure such benefit or payment; or (d) knowingly and willfully
soliciting or receiving any remuneration (including any kickback, bribe, or
rebate), directly or indirectly, overtly or covertly, in cash or in kind or
offering to pay or receive such remuneration (1) in return for referring an
individual to a person for the furnishing or arranging for the furnishing or any
item or service for which payment may be made in whole or in part by Medicare or
Medicaid, or (2) in return for purchasing, leasing, or ordering or arranging for
or recommending purchasing, leasing, or ordering any good, facility, service or
item for which payment may be made in whole or in part by Medicare or Medicaid.
(w) Practice Compliance. AIG is duly licensed as a medical practice and
is lawfully operated in accordance with the requirements of all Applicable Laws
and has all necessary authorizations for the use and operation of a medical
practice, all of which are in full force and effect. There are no outstanding
notices of deficiencies relating to AIG issued by any governmental authority or
third-party payor requiring conformity or compliance with any applicable law or
condition for participation with such governmental authority or third-party
payor, and after reasonable and independent inquiry and due diligence and
investigation, AIG has neither received notice nor has any Knowledge or reason
to believe that such necessary authorizations may be revoked or not renewed in
the Ordinary Course of Business.
(x) Rates and Reimbursement Policies. The jurisdiction in which AIG is
located does not currently impose any restrictions or limitations on rates which
may be charged to private pay patients receiving services provided by AIG. AIG
does not have any rate appeal currently pending before any governmental
authority or any administrator of any third-party payor program. No Applicable
Law which affects rates or reimbursement procedures has been enacted,
promulgated or issued within the eighteen (18) months preceding the date of this
Agreement and no such legal requirement is proposed or currently pending in the
jurisdiction in which AIG is located, which could have a material adverse effect
on AIG or may result in the imposition of additional Medicaid, Medicare,
charity, free care, welfare, or other discounted or government assisted patients
at AIG or require AIG to obtain any necessary authorization which AIG does not
currently possess.
(y) Accounts Receivable. All accounts receivable, unbilled invoices and
other debts due or recorded in the respective records and books of account of
AIG, as being due to AIG, (i) are valid, existing and are collectible within one
hundred eighty (180) days following the date of this Agreement without resort to
legal proceedings or use of collection agencies, (ii) have arisen in the
Ordinary Course of Business, and (iii) none of such accounts receivable or other
debts is or will at the Closing Date be subject to any counterclaim or set-off
except to the extent of any such provision or reserve. There has been no
material adverse change since May 31, 1997, in the amount of accounts receivable
or other debts due AIG, the allowances with respect thereto, or accounts payable
of AIG from that reflected in the most recent balance sheet previously delivered
by AIG to SCN.
(z) Guaranties. AIG is not a guarantor and otherwise is not liable for
any liability or obligation (including indebtedness) of any other Person.
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(aa) Powers of Attorney. There are no outstanding powers of attorney
executed by AIG, except as may be contained in financing documents or security
agreements listed in Section 3(i) of the Disclosure Schedule.
(bb) Tangible Assets. AIG owns or leases all land, buildings,
machinery, equipment, and other tangible assets necessary for the conduct of its
business as presently conducted. Each tangible asset is free from defects, has
been maintained in accordance with normal industry practice, and is in good
operating condition and repair (subject to normal wear and tear).
(cc) SCN Share Ownership; Investment Intent.
(i) Neither AIG nor the AIG Stockholder owns, beneficially or
otherwise, any SCN Shares.
(ii) SCN Shares issuable in the Merger are being acquired by
the AIG Stockholder solely for his own account for investment and not
with a view to the distribution thereof, and the AIG Stockholder
acknowledges and understands that the certificate(s) representing such
SCN Shares will bear a legend in substantially the following form:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR UNDER ANY STATE SECURITIES ACT AND CANNOT BE SOLD,
TRANSFERRED, OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER
SUCH ACTS OR UNLESS EXEMPTIONS FROM REGISTRATION ARE
AVAILABLE.
(iii) The AIG Stockholder represents and warrants as follows:
(A) The AIG Stockholder is an "accredited investor"
as defined under Rule 501 of Regulation D promulgated under
the Securities Act.
(B) The AIG Stockholder confirms that SCN has made
available to him or to his representatives the opportunity to
ask questions of SCN officers and directors and to acquire
such information about the SCN Shares and the business and
financial condition of SCN as the AIG Stockholder requested,
which additional information has been received.
(C) In deciding to acquire SCN Shares pursuant to
this Agreement, the AIG Stockholder consulted with his legal,
financial, and tax advisors with respect to the Merger and the
nature of the investment together with any additional
information provided under subsection (B) above.
(D) The AIG Stockholder has adequate means of
providing for his current needs and personal contingencies and
has no need for liquidity in his investment in SCN. The AIG
Stockholder, either alone or with his representatives, has
such knowledge and experience in financial and business
matters that they are capable of evaluating the merits and
risks of the Merger.
(E) The AIG Stockholder understands and acknowledges
that the investment in the SCN Shares is a speculative
investment which involves a high degree risk of loss of such
AIG Stockholder's investment therein; that there are
substantial restrictions on the transferability of the SCN
Shares under the applicable provisions of the Securities Act
and the rules and regulations promulgated thereunder and
applicable state securities or "blue sky" laws; and,
accordingly, that it may not be possible to liquidate an
investment in the SCN Shares.
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(F) The AIG Stockholder has been advised and
understands that (i) the offer and sale of the SCN Shares have
not been registered under the Securities Act; (ii) the SCN
Shares must held indefinitely and the AIG Stockholder must
continue to bear the economic risk of the investment in the
SCN Shares until the offer or sale of the SCN Shares is
subsequently registered under the Securities Act or any "blue
sky" laws or an exemption from such registration is available;
(iii) Rule 144 promulgated under the Securities Act is not
presently available with respect to the sale of any securities
of SCN, including the SCN Shares, and when and if the SCN
Shares may be disposed of without registration in reliance on
Rule 144, such disposition can be made only in accordance with
the terms and conditions of such Rule; (iv) the restrictive
legends described in Section 3(ac)(ii) shall be placed on the
certificates representing the SCN Shares; and (v) a notation
shall be made in the appropriate records of SCN indicating
that the SCN Shares are subject to restrictions on transfer
and appropriate stop-transfer instructions will be issued to
any transfer agent with respect to the SCN Shares.
(dd) Full Disclosure. No representation or warranty made by AIG in this
Agreement contains or will contain any untrue statement of a material fact or
omits or will omit to state a material fact necessary to make the statements
contained herein or therein not materially misleading.
4. Representations and Warranties of SCN. SCN represents and warrants
to AIG that the statements contained in this Section 4 are correct and complete
as of the date of this Agreement and will be correct and complete as of the
Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Section 4).
(a) Organization. SCN is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Delaware.
(b) Capitalization. As of the date of this Agreement, the entire
authorized capital stock of SCN consists of 50,000,000 SCN Shares, of which
14,662,575 SCN Shares are issued and outstanding and 2,000,000 shares of
preferred stock, none of which are issued and outstanding. All of the SCN Shares
to be issued in the Merger have been duly authorized and, upon consummation of
the Merger, will be validly issued, fully paid, and nonassessable.
(c) Authorization of Transaction. SCN has full power and authority
(including full corporate power and authority) to execute and deliver this
Agreement, to issue the SCN Shares and otherwise to perform its obligations
hereunder; provided, however, that SCN cannot consummate the transaction unless
and until the Merger receives the approval of the SCN Board of Directors. Except
as set forth in the preceding sentence, this Agreement constitutes the valid and
legally binding obligation of SCN, enforceable in accordance with its terms and
conditions.
(d) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge or other restriction of any government,
governmental agency, professional regulatory organization or court to which SCN
is subject or may become subject as a result of the transaction contemplated by
this Agreement, or any provision of the charter or bylaws of SCN or (ii)
conflict with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, modify,
or cancel, or require any notice under any agreement, contract, lease, license,
instrument or other arrangement to which SCN is a party or by which it is bound
or to which any of its assets is subject. Other than state and federal filings
required by the Securities Act and similar state statutes, SCN does not need to
give any notice to, make any filing with, or obtain any authorization, consent,
or approval of any government or governmental agency in order for the Parties to
consummate the transactions contemplated by this Agreement.
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<PAGE>
(e) Brokers' Fees. SCN does not have any liability or obligation to pay
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which SCN could become liable or
obligated.
(f) Securities Filings. All reports and statements filed with respect
to SCN pursuant to the Securities Act or the Securities Exchange Act conform to
the requirements of the Securities Act and the Securities Exchange Act and the
rules and regulations promulgated thereunder and did not include at the time of
filing such document any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading.
5. Covenants. The Parties agree as follows with respect to the period
from and after the execution of this Agreement.
(a) General. Each of the Parties will use its or his best efforts to
take all action and to do all things necessary in order to consummate and make
effective the transactions contemplated by this Agreement (including
satisfaction of the closing conditions set forth in Section 6 below) to be
satisfied by him or it. This paragraph shall not be construed to obligate any of
the Parties to waive any condition precedent to his or its obligations to
perform hereunder.
(b) Notices and Consents. AIG will give any notices to third parties,
and will use its best efforts to obtain any third party consents necessary or
required to consummate the Merger or that SCN reasonably may request in
connection with the matters referred to in Section 3(i) above.
(c) Regulatory Matters and Approvals. Each of the Parties will give any
notices to, make any filings with, and use its reasonable best efforts to obtain
any necessary authorizations, consents, and approvals of governments and
governmental agencies in connection with the transactions contemplated by this
Agreement. Without limiting the generality of the foregoing:
(i) Tax Reporting. The Merger is intended to qualify as a
reorganization under Code Section 368(a)(1)(A). Each of the parties
agrees to report this transaction for all purposes in accordance with
the foregoing.
(ii) Licenses and Permits. Each of the Parties shall have
obtained all licenses and permits necessary to operate their respective
businesses.
(d) Operation of Business. From the date of this Agreement through the
Closing Date, AIG will not engage in any practice, take any action, or enter
into any transaction outside the Ordinary Course of Business. Without limiting
the generality of the foregoing:
(i) AIG will not authorize or effect any change in its
charter documents or bylaws;
(ii) AIG will not grant any options, warrants, or other rights
to purchase or obtain any of its capital stock or issue, sell or
otherwise dispose of any of its capital stock (except upon the
conversion or exercise of options, warrants, and other rights currently
outstanding);
(iii) AIG will not declare, set aside, or pay any dividend or
distribution with respect to its capital stock (whether in cash or in
kind), or redeem, repurchase, or otherwise acquire any of its capital
stock in either case outside the Ordinary Course of Business without
the consent of SCN, which consent shall not be unreasonably withheld;
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<PAGE>
(iv) AIG will not issue any note, bond or other debt security
or create, incur, assume or guarantee any indebtedness for borrowed
money or capitalized lease obligation outside the Ordinary Course of
Business;
(v) AIG will not impose any Security Interest upon any of its
assets outside the Ordinary Course of Business;
(vi) AIG will not make any capital investment in, make any
loan to, or acquire the securities or assets of any other Person
outside the Ordinary Course of Business;
(vii) AIG will not make any change in employment terms for any
of its directors, officers or employees outside the Ordinary Course of
Business; and
(viii) AIG will not commit to do any of the foregoing.
(e) Further Acts and Assurances. AIG and the AIG Stockholder shall, at
any time and from time to time at and after the Effective Time, upon request of
SCN, take any and all steps necessary to place SCN in possession and operating
control of the Practice Assets and to effectuate the Merger, and will do,
execute, acknowledge and deliver, or will cause to be done, executed,
acknowledged and delivered, all such further acts, deeds, assignments,
transfers, conveyances, powers of attorney, and assurances as may be required
for better transferring and confirming to SCN or its successors and assigns, or
for better reducing to possession, any or all of the Practice Assets or
consummating the Merger.
(f) Full Access. Upon three (3) days prior notice, AIG will permit
representatives of SCN to have full access to all premises, properties,
personnel, books, records (including tax records), contracts, and documents of
or pertaining to AIG during normal business hours. SCN will treat and hold as
such any confidential information it receives from AIG in the course of the
reviews contemplated by this Section 5(f), will not use any of the confidential
information except in connection with this Agreement, and, if this Agreement is
terminated for any reason whatsoever, agrees to return to AIG all tangible
embodiments (and all copies) thereof which are in its possession.
(g) Notice of Developments. Each Party will give prompt written notice
to the other Parties of any material adverse development causing a breach of any
of its own representations and warranties in Section 3 or Section 4 above, as
applicable. No disclosure by any Party pursuant to this Section 5(g), however,
shall be deemed to amend or supplement the Disclosure Schedule or to prevent or
cure any misrepresentation, breach of warranty, or breach of covenant.
(h) Exclusivity. Until the earlier of (i) July 31, 1997, or (ii) the
Effective Time, AIG will not solicit, initiate, or encourage the submission of
any proposal or offer from any Person relating to the acquisition of all or
substantially all of the capital stock or assets of AIG (including any
acquisition structured as a merger, consolidation, or share exchange). AIG shall
notify SCN immediately if any Person makes any proposal, offer, inquiry, or
contact with respect to any of the foregoing.
(i) Collection of Accounts Receivable. The AIG Stockholder agrees to
cooperate with SCN in the collection of accounts receivable owned by AIG as of
the Effective Time acquired pursuant to this Agreement. SCN, at its option,
shall have the right to require the collection of said accounts receivable
through a lockbox or bank account sweep arrangement. In connection therewith,
the AIG Stockholder agrees to execute the necessary documents and follow the
necessary procedures as described in the Service Agreement to accommodate the
collection of the accounts receivable in such manner.
(j) Payment of Expenses. On or before the Effective Time, AIG shall
have paid or discharged any and all liabilities or charges for costs or fees
owed as a result of the transaction contemplated by this Agreement.
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<PAGE>
(k) Corporate Authorization. By execution of this Agreement, the AIG
Stockholder agrees to take any and all steps necessary and will do, execute,
acknowledge and deliver, or will cause to be done, executed, acknowledged and
delivered, all such acts, deeds and assurances required in order to consummate
the Merger, including voting as directors of AIG in favor of the Merger and
voting as stockholders of AIG in favor of the Merger at any meetings (or in any
action by written consent) required by the Texas Professional Association Act.
(l) Malpractice Insurance. On or before the Effective Time, all
physicians and employees of AIG must be covered by medical malpractice insurance
and, if required by SCN, medical malpractice tail insurance to cover prior
occurrences shall be procured by AIG.
(m) Distribution of Excluded Assets. Prior to the Effective Time, AIG
shall have distributed to the AIG Stockholder all of the assets listed on
Schedule 5(m), which constitute the entirety of the assets owned by AIG not
being acquired by SCN (the "Excluded Assets").
(n) Satisfaction of Indebtedness. Prior to the Effective Time, AIG
shall have caused the payoff of all liabilities owed to third-parties and all
indebtedness owed to banks or other financial institutions or lenders or shall
have caused the assumption thereof by a new entity organized by the AIG
Stockholder; provided, however, that SCN shall assume payment for (i) all of
AIG's trade payables (rent, utilities, telephone, etc.) incurred by AIG during
the thirty day period prior to the Closing Date and in the Ordinary Course of
Business and (ii) AIG's state franchise tax liability not to exceed, in the
aggregate with the state franchise tax liabilities of Neal C. Small, M.D. &
Associates, P.A., Associated Arthroscopy Institute, Inc., Allied Health
Services, P.A., Neal C. Small, M.D., P.A., and Access Medical Supply, Inc. being
assumed by SCN pursuant to the agreements referred to in Section 6 (a)(ix)
below, $160,000. Notwithstanding any contrary provision contained herein, SCN
shall not be deemed to have assumed, nor shall SCN assume: (i) any liability
which may be incurred by reason of any breach of or default under such
contracts, leases, commitments or obligations which occurred prior to the
Closing Date; (ii) any liability for any employee benefits payable to employees
of AIG, including, but not limited to, liabilities arising under any Employee
Benefit Plan or accrued vacation or sick pay; (iii) any liability based upon or
arising out of a violation of any laws by AIG, including, without limiting the
generality of the foregoing, any such liability which may arise in connection
with agreements, contracts, commitments or provision of services by AIG; nor
(iv) any liability based upon or arising out of any tortious or wrongful actions
of AIG or any Physician Owner, or any liability for the payment of any taxes
imposed by law on AIG arising from or by reason of the transactions contemplated
by this Agreement. AIG shall establish a reserve for income, excise or other
taxes to be paid upon the collection of any cash basis accounts receivable
existing on the books of AIG at the Effective Time.
(o) Conversion into Business Corporation. If required by the Texas
Professional Association Act, prior to the Effective Time, the AIG Stockholder
shall have caused the conversion of AIG to a Texas business corporation.
(p) Employee Benefit Plans. Prior to the Effective Time, all Employee
Benefit Plans shall be terminated in accordance with, and to the extent required
by, Applicable Law.
(q) Securities Laws Compliance. No AIG Stockholder shall dispose of the
SCN Shares received as a result of the Merger except in accordance with the
provisions of the Securities Act, the provisions of any rule adopted by the
Securities and Exchange Commission pursuant to the Securities Act and the "blue
sky" laws of any applicable state.
(r) Piggyback Registration.
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(i) Notice of Piggyback Registration and Inclusion of SCN
Shares.
If within one (1) year from the date of this Agreement SCN
shall elect to file a registration statement ("Registration Statement") on Form
S-2 or S-3 (or any successor form thereto) under the Act with respect to any of
its securities, either for its own account or the account of a security holder
or holders, other than a registration on Form S-4 (or its equivalent) in
connection with a reorganization, or a registration relating solely to employee
benefit plans (excluding the foregoing events, a "Registration"), SCN will: (i)
promptly give the AIG Stockholder written notice thereof (which shall include a
list of the jurisdictions in which SCN intends to attempt to qualify such
securities under the applicable Blue Sky or other state securities laws) and
(ii) include in such Registration (and any related registration and/or
qualification under Blue Sky laws or other compliance), and in any underwriting
involved therein, all the SCN Shares specified in a written request delivered to
SCN by the AIG Stockholder within 30 days after delivery of such written notice
from SCN.
(ii) Underwriting in Piggyback Registration.
A. Notice of Underwriting in Piggyback Registration.
If the Registration of which SCN gives notice is for a
Registered public offering involving an underwriting, SCN shall so advise the
AIG Stockholder as a part of the written notice given above. In such event, the
right of the AIG Stockholder to Registration shall be conditioned upon such
underwriting and the inclusion of such Stockholder's SCN Shares in such
underwriting to the extent provided in this Section. The AIG Stockholder shall
(together with SCN and any other holders distributing their securities through
such underwriting) enter into an underwriting agreement in customary form with
the representative of the Underwriter ("Underwriter's Representative") for such
offering. The AIG Stockholder shall have no right to participate in the
selection of underwriters for an offering pursuant to this Section.
B. Marketing Limitation in Piggyback Registration.
In the event the Underwriter's Representative advises the
AIG Stockholder in writing that market factors (including, without limitation,
the aggregate number of shares of Common Stock requested to be included in such
Registration, the general condition of the market, and the status of the persons
proposing to sell securities pursuant to the Registration) require a limitation
of the number of shares to be underwritten, the Underwriter's Representative
(subject to the allocation priority set forth in Section 5(r)(ii)C.) may limit
(or reduce to zero) the number of SCN Shares to be included in such Registration
and underwriting; provided however, that any SCN Shares so excluded shall retain
any and all Registration rights set forth in this Section.
C. Allocation of SCN Shares in Piggyback Registration.
In the event that the Underwriter's Representative limits
the number of shares to be included in a Registration pursuant to Section
5(r)(ii)C., the number of shares to be included in such Registration shall be
allocated in the following manner: Common Stock held by persons who are not
contractually entitled to include shares in such Registration shall be excluded
from such Registration and underwriting to the extent required by such
limitation. If a limitation of the number of shares is still required after such
exclusion, the number of shares of Common Stock that may be included in the
Registration and underwriting by all selling shareholders (including the AIG
Stockholder and all other persons contractually entitled to such registration)
shall be allocated among the AIG Stockholder and other holders of securities
other than SCN Shares requesting and contractually entitled to include shares in
such Registration, in proportion, as nearly as practicable, to the respective
amounts of securities (including SCN Shares) which the AIG Stockholder and such
other holders would otherwise be entitled to include in such Registration. No
SCN Shares or other securities excluded from the underwriting by reason of this
Section shall be included in the Registration Statement.
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<PAGE>
D. Withdrawal in Piggyback Registration.
If the AIG Stockholder disapproves of the terms of any
such underwriting, he may elect to withdraw therefrom by written notice to SCN
and the underwriter delivered at least seven days prior to the effective date of
the Registration Statement. Any SCN Shares or other securities excluded or
withdrawn from such underwriting shall be withdrawn from such Registration.
(iii) Blue Sky in Piggyback Registration.
In the event of any Registration of SCN Shares pursuant to
this Section, SCN will use its best efforts to register and/or qualify the
securities covered by the Registration Statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably appropriate for the
distribution of such securities; provided, however, that notwithstanding
anything in this Agreement to the contrary, in the event any jurisdiction in
which the securities shall be qualified imposes a non-waivable requirement that
expenses incurred in connection with the qualification of the securities be
borne by selling Stockholders, the AIG Stockholder shall pay its pro rata share
of such expenses.
6. Conditions to Obligation to Close.
(a) Conditions to Obligation of SCN. The obligation of SCN to
consummate the Merger is subject to satisfaction of the following conditions or
before the Closing Date:
(i) AIG shall have procured all of the third party consents
specified in Section 5(b) above;
(ii) the representations and warranties set forth in Section 3
above shall be true and correct in all material respects at and as of
the Closing Date;
(iii) AIG shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(iv) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency
of any federal, state, local, or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction, judgment, order, decree,
ruling, or charge would (A) prevent consummation of any of the
transactions contemplated by this Agreement, (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation, or (C) affect adversely the right of the Surviving
Corporation to own the former assets or to operate the former business
of AIG;
(v) SCN shall have received the resignations, effective as of
the Closing, of each director and officer of AIG other than those whom
SCN shall have specified in writing prior to the Closing;
(vi) all actions to be taken by AIG and/or the AIG Stockholder
in connection with consummation of the transactions contemplated hereby
and all certificates, opinions, instruments, and other documents
required to effect the transactions contemplated hereby have been taken
or delivered to SCN and are satisfactory in form and substance to SCN;
(vii) the issuance of the SCN Shares to the AIG Stockholder
will not violate federal securities laws or the securities laws of any
state of the United States;
(viii) SCN shall have completed and be satisfied with its due
diligence review, including SCN's review of the Disclosure Schedule;
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(ix) On or before the Closing Date, the transactions
contemplated by (i) the Merger Agreement between SCN, Neal C. Small,
M.D., P.A., and Neal C. Small, M.D. dated July 3, 1997, (ii) the Merger
Agreement between SCN, Neal C. Small, M.D. & Associates, P.A. and Neal
C. Small, M.D. dated July 3, 1997, (iii) the Asset Purchase Agreement
between SCN, Associated Arthroscopy Institute, Inc., Alexander I.
Glogau, M.D. and Neal C. Small, M.D., dated July 3, 1997, (iv) the
Asset Purchase Agreement between SCN, Allied Health Services, P.A. and
Neal C. Small, M.D. dated July 3, 1997, and (v) the Asset Purchase
Agreement between SCN, Access Medical Supply, Inc., Alexander I.
Glogau, M.D. and Neal C. Small, M.D., dated July 3, 1997, shall have
been consummated; and
(x) SCN's Board of Directors shall have approved the Merger in
their sole and absolute discretion.
SCN may waive any condition specified in this Section 6(a) if it executes a
writing so stating at or prior to the Closing.
(b) Conditions to Obligation of AIG. The obligation of AIG to
consummate the Merger is subject to satisfaction of the following conditions:
(i) This Agreement and the Merger shall have received the AIG
director and AIG Stockholder's approval required by the Texas
Professional Association Act.
(ii) the representations and warranties set forth in Section 4
above shall be true and correct in all material respects at and as of
the Closing Date;
(iii) SCN shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing; and
(iv) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency
of any federal, state, local or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction, judgment, order, decree,
ruling or charge would (A) prevent consummation of any of the
transactions contemplated by this Agreement, (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation, or (C) affect adversely the right of the Surviving
Corporation to own the former assets of AIG.
AIG may waive any condition specified in this Section 6(b) if it
executes a writing so stating at or prior to the Closing.
7. Items to be Delivered at or Prior to Closing.
(a) By the AIG Stockholder or AIG. The AIG Stockholder or AIG, as
applicable, shall execute and deliver to SCN, prior to or at the Closing:
(i) Certified resolutions of the directors and stockholders of
AIG authorizing the execution of all documents and the consummation of
all transactions contemplated hereby;
(ii) The Texas Articles of Merger which shall be in the form
required by SCN's legal counsel;
(iii) Stock Certificates representing ownership of all shares
of AIG, duly endorsed to SCN;
(iv) A Service Agreement in the form attached hereto as
Exhibit 7(a)(iv);
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<PAGE>
(v) A certificate duly executed by the President of AIG and
the AIG Stockholder stating as of the Closing Date, all representations
and warranties are true, all covenants and agreements contained in the
Agreement to be performed by AIG and the AIG Stockholder have been
performed or complied with and all conditions to closing have been
complied with;
(vi) An opinion from AIG's counsel in substantially the form
attached hereto as Exhibit 7(a)(vi);
(vii) Such other instruments as may be reasonably requested by
SCN in order to effect to or carry out the intent of this Agreement.
(b) By SCN. SCN shall deliver to AIG at or prior to the Closing:
(i) Stock Certificates representing the SCN Shares being
issued to the AIG Stockholder pursuant to Section 2(d)(v);
(ii) The Delaware Certificate of Merger in substantially the
form attached hereto as Exhibit 2(a)(1);
(iii) An opinion from SCN's counsel in substantially the form
attached hereto as Exhibit 7(b)(iii);
(iv) A certificate, duly executed by the President of SCN,
stating as of the Closing Date, all representations and warranties of
SCN are true, all covenants and agreements contained in the Agreement
to be performed by SCN have been performed or complied with and all
conditions to Closing have been satisfied;
(v) A Service Agreement in the form attached hereto as Exhibit
7(a)(iv);
(vi) Certified resolutions of SCN authorizing the execution of
all documents and the consummation of all transactions contemplated
hereby;
(vii) the cash payment for any fractional SCN Shares pursuant
to Section 2(e); and
(viii) Such other instruments as may be reasonably requested
by AIG or the AIG Stockholder in order to effect to or carry out the
intent of this Agreement.
8. Termination.
(a) Termination of Agreement. Either of the Parties may terminate this
Agreement with the prior authorization of its board of directors (whether before
or after stockholder approval) as provided below:
(i) the Parties may terminate this Agreement by mutual written
consent at any time prior to the Effective Time;
(ii) SCN may terminate this Agreement by giving written notice
to AIG at any time prior to the Effective Time (A) in the event AIG has
breached any representation, warranty, or covenant contained in this
Agreement in any material respect, SCN has notified AIG of the breach,
and the breach has continued without cure for a period of 30 days after
the notice of breach, (B) if the Closing shall not have occurred on or
before July 31, 1997 by reason of the failure of any condition
precedent under Section 6(a) hereof (unless the failure results
primarily from SCN breaching any representation, warranty, or covenant
contained in this Agreement); or
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<PAGE>
(iii) AIG may terminate this Agreement by giving written
notice to SCN at any time prior to the Effective Time (A) in the event
SCN has breached any representation, warranty, or covenant contained in
this Agreement in any material respect, AIG has notified SCN of the
breach, and the breach has continued without cure for a period of 30
days after the notice of breach or (B) if the Closing shall not have
occurred on or before July 31, 1997 by reason of the failure of any
condition precedent under Section 6(b) hereof (unless the failure
results primarily from AIG breaching any representation, warranty, or
covenant contained in this Agreement).
(b) Effect of Termination. If any Party terminates this Agreement
pursuant to Section 8(a) above, all rights and obligations of the Parties
hereunder shall terminate without any liability of any party to any other Party
(except for any liability of any Party then in breach).
9. Indemnification.
(a) Indemnification by the AIG Stockholder. The AIG Stockholder agrees
to and shall defend, indemnify and hold harmless SCN, its successors and
assigns, officers and directors against any and all losses, liabilities,
expenses (including, but without limitation, reasonable attorneys fees) and
damages resulting from or arising out of the breach, untruth or inaccuracy of
any representation, warranty or covenant of AIG or the AIG Stockholder set forth
in this Agreement. The AIG Stockholder shall not be liable to SCN for any claims
against the AIG Stockholder under this Section 9(a) unless and until the
aggregate of all claims against the AIG Stockholder exceeds the sum of
$25,000.00, whereupon SCN shall be entitled to recover the full amount of all
claims, including the initial $25,000.00.
(b) Notice to the AIG Stockholder; Opportunity to Defend. SCN agrees to
give prompt notice to the AIG Stockholder of the assertion of any claim, or the
commencement of any suit, action or proceeding, in respect of which indemnity
may be sought under Section 9(a). The AIG Stockholder may participate in and at
his election, or at the request of SCN, assumes the defense of any such suit,
action or proceeding at the AIG Stockholder's expense. The AIG Stockholder shall
not be liable under Section 9(a) for any settlement effected without his consent
of any claim, litigation or proceeding in respect of which indemnity may be
sought under Section 9(a) which consent shall not be unreasonably withheld.
(c) General Indemnification by SCN. SCN agrees to and shall defend,
indemnify and hold harmless the AIG Stockholder, his heirs and assigns against
any and all losses, liabilities, expenses (including, but without limitation,
reasonable attorneys fees) and damages resulting from the breach, untruth or
inaccuracy of any representation, warranty or covenant of SCN set forth in this
Agreement. SCN shall not be liable to the AIG Stockholder for any claims against
SCN under this Section 9(c) unless and until the aggregate of all claims against
SCN exceeds the sum of $25,000.00, whereupon the AIG Stockholder shall be
entitled to recover the full amount of all claims, including the initial
$25,000.00.
(d) Notice to SCN; Opportunity to Defend. The AIG Stockholder agrees to
give prompt notice to SCN of the assertion of any claim, or the commencement of
any suit, action or proceeding in respect of which indemnity may be sought under
Section 9(c). SCN may participate in and at its election, or at the request of
the AIG Stockholder, assume the defense of any such suit, action or proceeding
at SCN's expense. SCN shall not be liable under Section 9(c) for any settlement
effected without its consent of any claim, litigation or proceeding in respect
of which indemnity may be sought hereunder, which consent shall not be
unreasonably withheld.
(e) Right of Setoff. In the event of any breach of warranty,
representation, covenant or agreement by AIG or the AIG Stockholder giving rise
to indemnification to SCN under Section 9(a) hereof, SCN shall be entitled to
offset the amount of damages incurred by it as a result of such breach of
warranty, representation, covenant or agreement against the amounts payable to
the AIG Stockholder or Associated Orthopaedics & Sports Medicine, P.A. under the
Service Agreement. In the event that SCN determines that an amount is to be so
offset, as a condition precedent to such right of setoff, SCN shall give the AIG
Stockholder written notice of the amount of such proposed setoff and the basis
- 21 -
<PAGE>
therefor within thirty (30) days after the date on which such amount is finally
determined. If SCN shall not have received written notice from the AIG
Stockholder contesting such setoff within twenty (20) days of their receipt of
such written notice from SCN, the setoff shall be deemed to have been consented
to by the AIG Stockholder, and SCN shall be entitled to deduct the entire amount
claimed as a setoff from the next succeeding amounts payable under the Service
Agreement. In the event that the AIG Stockholder shall object to the proposed
setoff by written notice received by SCN during such twenty (20) day period, the
entitlement of SCN to the claimed setoff shall be determined as set forth in
Section 10.4.3 of the Service Agreement.
10. Miscellaneous.
(a) Survival. The representations and warranties of the AIG
Stockholder, AIG and SCN contained in this Agreement and the indemnifications
contained herein shall survive the Closing. No claim for indemnification with
respect to any alleged misrepresentation or breach of warranty or covenant may
be made after three (3) years following the Closing Date. Any matter to which
indemnification pertains and with respect to which a claim has been asserted or
threatened following the Closing Date shall continue to be subject to the
indemnification under this Agreement until finally terminated, settled, resolved
or adjudicated; and all terms, conditions and stipulations of this Agreement
shall likewise continue to apply.
(b) No Third-Party Beneficiaries. Except as provided in Section 9(e),
this Agreement shall not confer any rights or remedies upon any Person other
than the parties and their respective successors and permitted assigns.
(c) Entire Agreement. This Agreement (including the documents referred
to herein) constitutes the entire agreement between the parties and supersedes
any prior understandings, agreements, or representations by or between the
parties, written or oral, to the extent they related in any way to the subject
matter hereof.
(d) Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties named herein and their respective successors
and permitted assigns. No party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other Party.
(e) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(f) Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(g) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
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<PAGE>
If to AIG: Copy to:
Alexander I. Glogau, M.D. Loren Weinstein
4031 West Plano Parkway 4031 West Plano Parkway
Plano, Texas 75093 Plano, Texas 75093
Facsimile: (972) 764-3469 Facsimile: (972) 764-3469
If to SCN:
Copy to:
Kerry R. Hicks, President
Specialty Care Network, Inc. David T. Popwell, Esq.
44 Union Boulevard, Suite 600 Baker, Donelson, Bearman & Caldwell
Lakewood, Colorado 80228 165 Madison Ave, Suite 2100
Facsimile: (303) 716-1298 Memphis, Tennessee 38103
Facsimile: (901) 577-2303
Any party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other party
notice in the manner herein set forth.
(h) Governing Law; Venue. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of Texas without
giving effect to any choice or conflict of law provision or rule (whether of the
State of Texas or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of Texas. Each of the parties
submits to the jurisdiction of any state or federal court sitting in Denver,
Colorado, in any action or proceeding arising out of or relating to this
Agreement and agrees that all claims in respect of the action or proceeding may
be heard and determined in any such court. Each party also agrees not to bring
any action or proceeding arising out of or relating to this Agreement in any
other court. Each of the parties waives any defense of inconvenient forum to the
maintenance of any action or proceeding so brought and waives any bond, surety,
or other security that might be required of any other party with respect
thereto.
(i) Amendments and Waivers. The parties may mutually amend any
provision of this Agreement at any time prior to the Effective Time with the
prior authorization of their respective boards of directors; provided, however,
that any amendment effected subsequent to AIG stockholder approval will be
subject to the restrictions contained in the Texas Professional Association Act.
No amendment of any provision of this Agreement shall be valid unless the same
shall be in writing and signed by both of the parties. No waiver by any party of
any default, misrepresentation, or breach of warranty or covenant hereunder,
whether intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
(j) Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(k) Expenses. Each of the Parties will bear its own costs and expenses
(including legal fees and expenses) incurred in connection with this Agreement
and the transactions contemplated hereby.
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<PAGE>
(l) Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context otherwise requires. The
word "including" shall mean including without limitation.
(m) No Referrals Required. The Parties agree that no part of this
Agreement shall be construed to induce or encourage the referral of patients or
the purchase of health care services or supplies. The Parties acknowledge that
there is no requirement under this Agreement or any other agreement between the
parties and SCN that any party refer any patients to any health care provider or
purchase any health care goods or services from any source. Additionally, no
payment under this Agreement is in return for the referral of patients, if any,
or in return for purchasing, leasing or ordering services from SCN or any of
SCN's affiliates. The Parties may refer patients to any company or person
providing services and will make such referrals, if any, consistent with
professional medical judgment and the needs and wishes of the relevant patients.
(n) Incorporation of Exhibits and Schedules. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
* * * * *
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<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
SPECIALTY CARE NETWORK, INC.
By:_________________________________________
Title:______________________________________
ALEXANDER I. GLOGAU, M.D., P.A.
By:_________________________________________
Title:______________________________________
--------------------------------------------
ALEXANDER I. GLOGAU, M.D., Stockholder
Exhibit 1-1
<PAGE>
ASSET PURCHASE AGREEMENT
By and Among
SPECIALTY CARE NETWORK, INC.,
ASSOCIATED ARTHROSCOPY INSTITUTE, INC.
ALEXANDER I. GLOGAU, M.D.
and
NEAL C. SMALL, M.D.
Dated as of July 3, 1997
<PAGE>
TABLE OF CONTENTS
(This Table of Contents is not a part of the Agreement and is only for
convenience of reference.)
Page
----
1. Definitions...............................................................1
2. Basic Transaction.........................................................4
(a) Purchase and Sale of Assets.....................................4
(b) Assumption of Liabilities.......................................4
(c) Purchase Price..................................................5
(d) The Closing.....................................................5
(e) Deliveries at Closing...........................................5
(f) Proration.......................................................5
(g) Taxes and Expenses..............................................5
(h) Allocation......................................................6
(i) Employees.......................................................6
3. Representations and Warranties of AAII and the Shareholders...............6
(a) Organization, Qualification, and Power..........................6
(b) Ownership Interest of AAII......................................6
(c) Authorization of Transaction....................................6
(d) Noncontravention................................................6
(e) Subsidiaries and Investments....................................7
(f) Financial Statements............................................7
(g) Undisclosed Liabilities.........................................7
(h) Brokers' Fees...................................................7
(i) Material Contracts..............................................7
(j) Insurance; Malpractice..........................................8
(k) No Changes Prior to Closing Date................................8
(l) Title; Condition................................................9
(m) Litigation......................................................9
(n) Permits and Licenses............................................9
(o) Tax Matters.....................................................9
(p) Employee Benefit Plans..........................................9
(q) Third-Party Relations..........................................10
(r) Compliance with Applicable Laws................................11
(s) Employee Compensation..........................................11
(t) Environmental Matters..........................................11
(u) Healthcare Compliance..........................................11
(v) Fraud and Abuse................................................12
(w) Practice Compliance............................................12
(x) Rates and Reimbursement Policies...............................12
(y) Accounts Receivable............................................12
(z) Guaranties.....................................................13
(aa) Powers of Attorney.............................................13
(bb) Tangible Assets................................................13
(cc) Full ..........................................................13
- ii -
<PAGE>
Page
----
4. Representations and Warranties of SCN....................................13
(a) Organization...................................................13
(b) Authorization of Transaction...................................13
(c) Noncontravention...............................................13
(d) Brokers' Fees..................................................13
(e) Securities Filings.............................................13
5. Covenants................................................................14
(a) General........................................................14
(b) Notices and Consents...........................................14
(c) Regulatory Matters and Approvals...............................14
(d) Operation of Business..........................................14
(e) Further Acts and Assurances....................................14
(f) Full Access....................................................15
(g) Notice of Developments.........................................15
(h) Exclusivity....................................................15
(i) Collection of Accounts Receivable..............................15
(j) Corporate Authorization........................................15
(k) Malpractice Insurance..........................................15
(l) Employee Benefit Plans.........................................15
6. Conditions to Obligation to Close........................................15
(a) Conditions to Obligation of SCN................................15
(b) Conditions to Obligation of AAII...............................16
7. Items to be Delivered at or Prior to Closing.............................17
(a) By the Shareholders or AAII....................................17
(b) By SCN.........................................................17
8. Termination..............................................................17
(a) Termination of Agreement.......................................17
(b) Effect of Termination..........................................18
9. Indemnification..........................................................18
(a) Indemnification by AAII and the Shareholders...................18
(b) Notice to AAII and the Shareholders; Opportunity to Defend.....18
(c) General Indemnification by SCN.................................18
(d) Notice to SCN; Opportunity to Defend...........................18
(e) Right of Setoff................................................19
10. Miscellaneous...........................................................19
(a) Survival.......................................................19
(b) No Third-Party Beneficiaries...................................19
(c) Entire Agreement...............................................19
(d) Succession and Assignment......................................19
(e) Counterparts...................................................19
(f) Headings.......................................................19
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<PAGE>
Page
----
(g) Notices........................................................19
(h) Governing Law Venue............................................20
(i) Amendments and Waivers.........................................20
(j) Severability...................................................20
(k) Expenses.......................................................21
(l) Construction...................................................21
(m) No Referrals Required..........................................21
(n) Incorporation of Exhibits and Schedules........................21
SCHEDULE 1(a) REAL PROPERTY.......................Schedule 1(a)-1
SCHEDULE 1(b) FURNITURE, FIXTURES & EQUIPMENT.....Schedule 1(b)-1
SCHEDULE 1(d) LEASES OF PERSONAL PROPERTY.........Schedule 1(d)-1
SCHEDULE 2(b) ASSUMED LIABILITIES.................Schedule 2(b)-1
EXHIBIT 2(h) PURCHASE PRICE ALLOCATION AGREEMENT..Exhibit 2(h)-1
EXHIBIT 7(a)(ii) BILL OF SALE.....................Exhibit 7(a)(ii)-1
EXHIBIT 7(a)(iii) SERVICE AGREEMENT...............Exhibit 7(a)(iii)-1
EXHIBIT 7(a)(v) AAII OPINION LETTER...............Exhibit 7(a)(v)-1
EXHIBIT 7(b)(ii) SCN OPINION LETTER...............Exhibit 7(b)(ii)-1
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<PAGE>
ASSET PURCHASE AGREEMENT
------------------------
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is entered into as of
July 3, 1997, by and among ASSOCIATED ARTHROSCOPY INSTITUTE, INC., a Texas
corporation ("AAII"), ALEXANDER I. GLOGAU, M.D., and NEAL C. SMALL, M.D. all
residents of the State of Texas (collectively the "Shareholders") on the one
hand and SPECIALTY CARE NETWORK, INC., a Delaware corporation ("SCN") on the
other hand. SCN, AAII and the Shareholders are referred to collectively herein
as the "Parties."
W I T N E S S E T H:
WHEREAS, AAII is a Texas corporation which owns the assets which are
used by and/or result from the Shareholders' practice of medicine;
WHEREAS, the Shareholders are medical doctors practicing medicine in
the State of Texas;
WHEREAS, the Parties anticipate that the transaction contemplated by
this Agreement will further certain of their business objectives; and
WHEREAS, the Parties desire to set forth in writing the terms and
conditions under which said transaction will be consummated.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the Parties, it is agreed as
follows:
1. Definitions.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Agreement" has the meaning set forth in the preface above.
"Applicable Laws" has the meaning set forth in Section 3(r) below.
"Assumed Liabilities" has the meaning set forth in Section 2(b) below.
"Texas Business Corporation Act" means the Business Corporation Act of
the State of Texas, as amended.
"Closing Date" has the meaning set forth in Section 2(d) below.
"AAII" has the meaning set forth in the preface above.
"Closing" has the meaning set forth in Section 2(d) below.
"Code" means the Internal Revenue Code of 1986, as amended.
"Delaware General Corporation Law" means the General Corporation Law of
the State of Delaware, as amended.
<PAGE>
"Disclosure Schedule" has the meaning set forth in Section 3 below.
"Employee Benefit Plans" has the meaning set forth in Section 3(p)(i)
below.
"Environmental Laws" means all federal, state, and local laws, rules,
regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and
charges thereunder and other governmental requirements relating to pollution,
control of chemicals, storage and handling of petroleum products, management of
waste (including biohazardous or biomedical waste), discharges of materials into
the environment, health, safety, natural resources, and the environment,
including laws relating to emissions, discharges, releases, or threatened
releases of pollutants, contaminants, or chemical, industrial, hazardous, or
toxic materials or wastes into ambient air, surface water, ground water, or
lands or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling of pollutants,
contaminants, or chemical, industrial, hazardous, or toxic materials or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Excluded Assets" means (a) the Articles of Incorporation,
qualifications to conduct business as a foreign corporation, arrangements with
registered agents relating to foreign qualifications, taxpayer and other
identification numbers, seals, minute books, transfer books, and other documents
relating to the organization, maintenance, and existence of AAII as a
corporation, (b) employment or noncompete agreements between AAII and those
licensed medical doctors under contract with AAII to provide medical services to
AAII patients, (c) all patient records and patient lists, (d) all insurance
policies of AAII and all claims arising thereunder and all prepaid expenses on
malpractice insurance premiums, (e) the inventories, cash, and accounts
receivable disposed of, cancelled, expanded or collected, as the case may be, by
AAII after the date hereof and prior to the Closing in the Ordinary Course of
Business and consistent with past practice, (f) personal property of individual
Shareholders which is not included on the financial statements of AAII, (g)
AAII's cash on hand as of the Closing Date, (h) AAII's third party provider
agreements and any of AAII's "provider numbers", (i) all drugs owned by AAII,
and (j) any rights of AAII under this Agreement or any related document or under
any other agreement between AAII on the one hand and SCN on the other hand
entered into on or after the date of this Agreement.
"GAAP" means United States generally accepted accounting principles as
in effect from time to time.
"Hazardous Materials" has the meaning set forth in Section 3(t) below.
"IRS" means the Internal Revenue Service.
"Knowledge" means actual Knowledge after reasonable investigation.
"Medical Waste" includes, but is not limited to, pathological waste,
blood, sharps, wastes from surgery or autopsy, dialysis waste, including
contaminated disposable equipment and supplies, cultures and stock of infectious
agents and associated biological agents, contaminated animals, isolation wastes,
contaminated equipment, laboratory waste, various other biological waste and
discarded materials contaminated with or exposed to blood, excretion or
secretion from human beings or animals, and any substance, pollutant, material
or contaminant listed or regulated under the Medical Waste Tracking Act of 1988,
42 U.S.C. ss.ss. 6992, et seq.
"Medical Waste Law" means the Medical Waste Tracking Act of 1988, as
amended, the U.S. Public Vessel Medical Waste Anti-Dumping Act of 1988, 33
U.S.C.A. ss.ss. 2501, et seq., the Marine Protection, Research and Sanctuaries
Act of 1972, 33 U.S.C.A. ss.ss. 1401, et seq., the Occupational Safety and
Health Act, 29 U.S.C.A. ss.ss. 651, et seq., the United States Department of
Health and Human Services, National Institute for Occupational Self-Safety and
Health Infectious Waste Disposal Guidelines, Publication No. 88-119, all
regulations and orders issued pursuant
- 2 -
<PAGE>
to any of the foregoing, and any other federal, state, regional, county,
municipal or other local laws, regulations and ordinances insofar as they
purport to regulate Medical Waste or impose requirements relating to Medical
Waste.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice.
"Parties" has the meaning set forth in the preface above.
"Person" means an individual, a partnership, a limited liability
company, a corporation, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization, or a governmental entity (or any
department, agency, or political subdivision thereof).
"PBGC" has the meaning set forth in Section 3(p)(ii) below.
"Shareholders" has the meaning set forth in the preface above.
"Purchase Price" has the meaning set forth in Section 2(a) below.
"Purchased Assets" means all of AAII's right, title, and interest in
and to the following assets of AAII owned as of the Closing Date:
(a) any and all leaseholds and subleaseholds in real property,
improvements, fixtures, and fittings thereon, and easements, rights-of-way, and
other appurtenances and hereditaments thereto (such as appurtenant rights in and
to public streets), including the assets described on Schedule 1(a) attached
hereto (the "Real Property"),
(b) any and all furniture, fixtures, equipment and other capital assets
of AAII, including items described on Schedule 1(b) attached hereto,
(c) any and all inventory of supplies, janitorial and office supplies,
and other disposables and consumables on hand at the Closing Date (excluding
drugs),
(d) any and all leases or subleases of equipment or other personal
property, and rights thereunder as described on Schedule 1(d) attached hereto,
(e) any and all Intellectual Property, goodwill associated therewith,
licenses and sublicenses granted and obtained with respect thereto, and rights
thereunder, remedies against infringements thereof, and rights to protection of
interests therein under the laws of all jurisdictions,
(f) any and all agreements, contracts, indentures, mortgages,
instruments, Security Interests, guaranties, other similar arrangements, and
rights thereunder,
(g) any and all claims, deposits, prepayments, refunds, causes of
action, choses in action, rights of recovery, rights of set off, and rights of
recoupment (except any such item relating to the payment of Taxes),
(h) any and all franchises, approvals, permits, licenses, orders,
registrations, certificates, variances, and similar rights obtained from
governments and governmental agencies,
(i) any and all books, records, ledgers, files, documents,
correspondence, lists, plats, architectural plans, drawings, and specifications,
creative materials, advertising and promotional materials, studies, reports, and
other printed or written materials (excluding patient medical records),
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(j) any and all accounts receivable (excluding governmental
receivables) of AAII as the same exist on the Closing Date and all rights to
receive payments on governmental receivables after payments on such governmental
receivables are received by AAII, which accounts receivable shall include all
uncollected patient accounts of AAII on the Closing Date.
The term "Purchased Assets" shall not include any specific item
included within the definition of Excluded Assets below.
"Real Property" has the meaning set forth within the definition of
Acquired Assets in this Section 1.
"Requisite AAII Approval" means the affirmative vote of the holders of
the requisite percentage of the shares of AAII which is required by the Texas
Business Corporation Act to approve the transactions contemplated by this
Agreement.
"Requisite SCN Board of Directors Approval" means the affirmative vote
of the holders of a majority of the SCN Board of Directors in favor of this
Agreement.
"SCN" has the meaning set forth in the preface above.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance,
charge or other security interest other than (a) mechanic's, materialmen's or
similar lien, (b) liens for taxes not yet due and payable or for taxes that the
taxpayer is contesting in good faith through appropriate proceedings, (c)
purchase money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.
"Service Agreement" means that certain Service Agreement dated as of
the Closing Date by and among SCN, AAII, and the Shareholders, in substantially
the form attached hereto as Exhibit 7(a)(iii).
"Subsidiary" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) owns a majority of the common stock or has the
power to vote or direct the voting of sufficient securities to elect a majority
of the directors.
2. Basic Transaction.
(a) Purchase and Sale of Assets. At the Closing, on and subject to the
terms and conditions of this Agreement, AAII agrees to transfer, sell, convey
and deliver to SCN, and SCN agrees to purchase, all of the Purchased Assets for
a price equal to $2,131,071 (the "Purchase Price") to be paid or satisfied as
set forth in Section 2(c).
(b) Assumption of Liabilities. Except as otherwise provided herein, SCN
shall assume at the Closing Date, and shall perform or discharge on or after the
Closing Date, only (i) the contracts, leases, commitments, obligations and
liabilities of AAII which are listed on Schedule 2(b) attached hereto, (ii) all
of AAII's trade payables (rent, utilities, telephone, etc.) incurred by AAII
during the thirty (30) day period prior to the Closing Date and in the ordinary
Course of Business, and (iii) AAII's state franchise tax liability not to
exceed, in the aggregate with the state franchise tax liabilities of Neal C.
Small, M.D., P.A., Allied Health Services, P.A., Access Medical Supply, Inc.,
Alexander I. Glogau, M.D., P.A. and Neal C. Small, M.D. & Associates, P.A. being
assumed by SCN pursuant to the Agreement referred to in Section 6(a)(vii) below,
$160,000 (collectively, the "Assumed Liabilities"), and shall assume no other
liabilities of
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AAII. Notwithstanding any contrary provision contained herein, SCN shall not be
deemed to have assumed, nor shall SCN assume: (i) any liability which may be
incurred by reason of any breach of or default under such contracts, leases,
commitments or obligations which occurred prior to the Closing Date; (ii) any
liability for any employee benefits payable to employees of AAII, including, but
not limited to, liabilities arising under any Employee Benefit Plan of AAII;
(iii) any liability based upon or arising out of a violation of any laws by
AAII, including, without limiting the generality of the foregoing, any such
liability which may arise in connection with agreements, contracts, commitments
or provision of services by AAII or any Physician Owner; (iv) any liability
based upon or arising out of any tortious or wrongful actions.
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of AAII or any Physician Owner, or (v) any liability for the payment of any
taxes imposed by law on AAII arising from any activities of AAII prior to the
Closing Date or by reason of the transactions contemplated by this Agreement.
(c) Purchase Price. SCN shall pay or satisfy the Purchase Price at the
Closing to AAII $2,131,071 in cash, payable by wire transfer or delivery of
immediately available funds, representing the Purchase Price.
(d) The Closing. The closing of the transaction (the "Closing") shall
take place at the offices of AAII, 4031 West Plano Parkway, Plano, Texas 75093,
commencing at 9:00 a.m. local time on the second business day following the
satisfaction or waiver of all conditions to the obligations of the Parties to
consummate the transactions contemplated hereby or such other date as the
Parties may mutually determine (the "Closing Date"); provided, however, that the
Closing Date shall be no later than July 31, 1997. Time is of the essence for
this Agreement.
(e) Deliveries at Closing. At the Closing, (i) SCN will deliver to AAII
the various certificates, instruments, and documents referred to in Section 7(b)
below; (ii) AAII will deliver to SCN the various certificates, instruments, and
documents referred to in Section 7(a) below.
(f) Proration. The following prorations among the Parties shall be made
as of the Closing Date. Except as provided for in Section 2(b), AAII shall
remain liable to the extent such items relate to any time period up to the
Closing Date and SCN shall be liable (solely pursuant to the terms of the
Service Agreement) to the extent such items relate to periods on and after the
Closing Date:
(i) Any ad valorem taxes, including, without limitation,
personal property taxes and assessments, and other taxes, if any, on or
with respect to the Purchased Assets,
(ii) Rents, additional rents, taxes and other items payable by
AAII under any lease, license, permit, contract or any other agreement
or arrangement to be assigned to or assumed by SCN, and
(iii) The amount of rents, taxes, and charges for sewer,
water, fuel, telephone, electricity, and other utilities; provided,
that if practicable, a meter reading shall be take on the Closing Date
and the respective obligations of the Parties determined in accordance
with such readings.
To the extent possible, the net amount of all such prorations will be
settled in cash at the Closing. If the actual expense of any of the above items
for the billing period in which the Closing Date falls is not known at the
Closing, the proration shall be made based on the expense incurred in the
previous billing cycle, for expenses billed less often than quarterly, and on
the average expense incurred in the preceding three (3) billing periods, for
expense bill quarterly or more often.
(g) Taxes and Expenses. AAII shall be responsible for any business,
occupation, withholding or similar tax or taxes of any kind related to AAII's
business for any period prior to the Closing Date. All applicable sales, use and
tangible taxes, documentary stamp taxes, filing and recording costs and other
transfer taxes, costs and fees relating to the transfer of title to the
Purchased Assets, and the consummation of the transactions described herein,
shall be paid by AAII.
(h) Allocation. The Parties agree to allocate the Purchase Price among
the Purchased Assets (and all other capitalizable costs) among the Purchased
Assets for all purposes (including financial accounting and tax purposes) in
accordance with the Purchase Price Allocation Agreement attached hereto as
Exhibit 2(h).
(i) Employees. As of the Closing Date, AAII shall terminate all the
employees of AAII other than Physician Employees and Technical Employees (both
as defined in the Service Agreement). SCN or an Affiliate of SCN may offer to
hire such terminated employees as it desires. AAII shall retain responsibility
under any and all employment
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agreements with respect to terminated employees. AAII hereby covenants and
agrees that it will take whatever steps are necessary to pay or fund completely
or reserve completely for any accrued benefits, where applicable, or vested
accrued benefits for which AAII or any entity might have any liability
whatsoever arising from any salary, wage, benefit, bonus, sick leave, insurance,
employment tax or similar liability of AAII to any employee or other person or
entity (including, without limitation, any Employee Benefit Plan of AAII and any
liability under employment contracts with AAII) allocable to services performed
prior to the Closing Date. AAII acknowledges that the purpose and intent of this
covenant is to assure that SCN shall have no liability whatsoever at any time in
the future with respect to any of AAII's employees or similar persons or
entities, including, without limitation, any Employee Benefit Plan of AAII.
3. Representations and Warranties of AAII and the Shareholders. AAII
and the Shareholders, jointly and severally, represent and warrant to SCN that
the statements contained in this Section 3 are correct and complete as of the
date of this Agreement and will be correct and complete as of the Closing Date
(as though made then and as though the Closing Date were substituted for the
date of this Agreement throughout this Section 3), except as set forth in the
disclosure schedule (the "Disclosure Schedule"). The Disclosure Schedule will be
arranged in paragraphs corresponding to the numbered and lettered paragraphs
contained in this Section 3 and Section 4.
(a) Organization, Qualification, and Power. AAII is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Texas. AAII is duly authorized to conduct business and is in good standing under
the laws of each jurisdiction in which the character or location of the
properties owned or the business conducted by AAII makes such qualification
necessary. AAII has the full power and authority to carry on the business in
which it is engaged and to own and use the properties owned, leased and used by
it.
(b) Ownership Interest of AAII. AAII is owned in the manner set forth
in Section 3(b) of the Disclosure Schedule. Except as set forth in Section 3(b)
of the Disclosure Schedule, there are no other shares of any form authorized or
outstanding.
(c) Authorization of Transaction. AAII has the full power and authority
to execute and deliver this Agreement and to perform its obligations hereunder.
This Agreement constitutes the valid and legally binding obligation of AAII and
the Shareholders, enforceable in accordance with its terms and conditions.
(d) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge or other restriction of any government,
governmental agency, professional regulatory organization or court to which AAII
is subject or any provision of the Articles of Incorporation or bylaws of AAII
or (ii) conflict with, result in a breach of, constitute a default under, result
in the acceleration of, create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice under any agreement, contract, lease,
license, instrument or other arrangement to which AAII is a party or by which it
is bound or to which any of its assets is subject (or result in the imposition
of any Security Interest upon any of its assets). AAII is not required to give
any notice to, make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order for the Parties to
consummate the transactions contemplated by this Agreement.
(e) Subsidiaries and Investments. AAII does not own, directly or
indirectly, any capital stock or other equity ownership or proprietary interest
in any other corporation, partnership, association, limited liability company,
trust, joint venture or other entity.
(f) Financial Statements. AAII has furnished SCN with unaudited balance
sheets dated December 31, 1995 and 1996 and May 31, 1997, and unaudited income
statements for the twelve (12) month periods ending December 31, 1996, 1995 and
1994 and the five (5) months ended May 31, 1997. Such financial statements,
including the notes thereto, except as indicated therein, were prepared on a
basis consistent with past accounting practices of AAII and fairly present the
results of operations for the periods noted therein. The balance sheets of AAII
delivered by AAII to SCN
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fairly present the financial condition of AAII at the date thereof, and except
as indicated therein, reflect all claims against and all debts and liabilities
of AAII fixed or contingent, as of the date thereof.
(g) Undisclosed Liabilities. AAII has no uninsured liability (whether
known or unknown, asserted or unasserted, absolute or contingent, accrued or
unaccrued, liquidated or unliquidated, and whether due or to become due),
including any liability for taxes, except for (i) liabilities set forth on the
face of the balance sheet dated as of December 31, 1996 and (ii) liabilities
which have arisen after December 31, 1996 in the Ordinary Course of Business
(none of which results from, arises out of, relates to, is in the nature of, or
was caused by any breach of contract, breach of warranty, tort, infringement, or
violation of law).
(h) Brokers' Fees. AAII does not have any liability or obligation to
pay any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement.
(i) Material Contracts. Section 3(i) of the Disclosure Schedule lists
the following contracts and other material agreements to which AAII is a party:
(i) any agreement (or group of related agreements) for the
lease of real or personal property to or from any Person;
(ii) any agreement (or group of related agreements) for the
purchase or sale of supplies, products, or other personal property or
for the furnishing or receipt of services;
(iii) any agreement concerning a partnership, limited
liability company or joint venture;
(iv) any agreement (or group of related agreements) under
which AAII has created, incurred, assumed, or guaranteed any
indebtedness for borrowed money, or any capitalized lease obligation
pursuant to which it has imposed a Security Interest in respect of any
of its assets, tangible or intangible;
(v) any agreement concerning confidentiality or
noncompetition;
(vi) any profit sharing, option, deferred compensation,
severance, or other plan or arrangement for the benefit of AAII's
current or former owners, directors, partners, managers, officers,
and/or employees;
(vii) any agreement for the employment of any individual on a
full-time, part-time, consulting, or other basis providing annual
compensation in excess of $25,000 or providing severance benefits;
(viii) any agreement pursuant to which AAII has advanced or
loaned any amount to any of its directors, officers, and employees;
(ix) any agreement pursuant to which the consequences of a
default or termination could have a material adverse effect on the
business, financial condition, operations, results of operations, or
future prospects of AAII;
(x) any third-party provider agreements; or
(xi) any other agreement (or group of related agreements)
outside the ordinary course of AAII's business or operations the
performance of which involves consideration in excess of $15,000; or
AAII has delivered or given SCN access to a correct and complete copy of each
written agreement listed in Section 3(i) of the Disclosure Schedule (as amended
through the Closing Date) and a written summary setting forth the terms and
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conditions of each oral agreement referred to in Section 3(i) of the Disclosure
Schedule. With respect to each such agreement: (A) the agreement is legal,
valid, binding, enforceable, and in full force and effect; (B) except as set
forth in Section 3(i) of the Disclosure Schedule, no notice of this Agreement or
consent of any third party is required in order for AAII to execute and deliver
this Agreement or to consummate the transactions contemplated hereby, and, after
assignment to SCN at Closing, the agreement will continue to be legal, valid,
binding, enforceable, and in full force and effect on identical terms; (C) no
party is in breach or default, and no event has occurred which with notice or
lapse of time would constitute a breach or default, or permit termination,
modification, or acceleration, under the agreement; and (D) no party has
repudiated any provision of the agreement. SCN shall have no obligation to
assume AAII's obligations under any agreement listed in Section 3(i) of the
Disclosure Schedule unless such obligation is also listed on Schedule 2(b).
(j) Insurance; Malpractice. Section 3(j) of the Disclosure Schedule
contains a list and brief description of all policies or binders of fire,
liability, product liability, workers compensation, health and other forms of
insurance policies or binders currently in force insuring against risks which
will remain in full force and effect at least through the Closing Date. Section
3(j) of the Disclosure Schedule contains a description of all current
malpractice liability insurance policies of the Shareholders, AAII and AAII's
professional employees and all predecessor policies in effect since February 1,
1990. Neither AAII, the Shareholders, nor AAII's professional employees have, in
the last seven (7) years, filed a written application for any insurance coverage
relating to AAII's business or property which has been denied by an insurance
agency or carrier. AAII, AAII's professional employees and the Shareholders have
been continuously insured for professional malpractice claims during the same
period. Section 3(j) of the Disclosure Schedule also sets forth a list of all
claims for any insured loss in excess of Five Thousand Dollars ($5,000.00) per
occurrence filed by or against AAII, AAII's professional employees or the
Shareholders during the three (3) year period immediately preceding the date
hereof, including workers compensation, general liability, environmental
liability and professional malpractice liability claims. None of AAII, AAII's
professional employees or the Shareholders is in material default with respect
to any provision contained in any such policy and none of them has failed to
give any notice or present any claim under any such policy in due and timely
fashion.
(k) No Changes Prior to Closing Date. During the period from December
31, 1996 through the date hereof, AAII has not (i) incurred any liability or
obligation of any nature (whether known or unknown, asserted or unasserted,
absolute or contingent, accrued or unaccrued, liquidated or unliquidated and
whether due or to become due), except in the Ordinary Course of Business, (ii)
written off as uncollectible any notes or accounts receivable, except write-offs
in the Ordinary Course of Business charged to applicable reserves, none of which
individually or in the aggregate is material to AAII, (iii) conducted its
business in such a manner so as to materially increase its accounts payable or
so as to materially decrease its accounts receivable, (iv) granted any increase
in the rate of wages, salaries, bonuses, or other remunerations of any employee,
except in the Ordinary Course of Business, (v) canceled or waived any claims or
rights of substantial value, (vi) made any change in any method of accounting,
(vii) otherwise conducted its business or entered into any transaction, except
in the usual and ordinary manner and in the Ordinary Course of Business, (viii)
agreed, whether or not in writing, to do any of the foregoing, or (ix) disposed
of its assets other than in the Ordinary Course of Business.
(l) Title; Condition. AAII has, or will have at the Closing Date, good
and marketable title to all of the Purchased Assets subject to no mortgage,
pledge, lien, lease, conditional sales agreement, option, right of first refusal
or any other encumbrance or charge, including taxes. AAII agrees to remove all
security interests reflected on any search of public records, if any, prior to
the Closing Date and to remove any other security interest filed with respect to
the Purchased Assets between the date of such search of public records and the
Closing Date.
(m) Litigation. There is no suit, action, proceeding at law or in
equity, arbitration, administrative proceeding or other proceeding or
investigation by any governmental entity pending, or threatened against, or
affecting AAII or any of the Purchased Assets, or any physician or other health
care professional engaged or employed by AAII, and there is no basis for any of
the foregoing. None of the actions, suits, proceedings, hearings, and
investigations set forth in
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Section 3(m) of the Disclosure Schedule could result in any material adverse
change in the operations, results of operations, or future prospects of the
business assets to be operated by SCN after the Closing.
(n) Permits and Licenses. AAII and all physicians and other health care
professionals engaged or employed by AAII have all permits and licenses required
by all applicable laws; have made all regulatory filings necessary for the
conduct of AAII's business; and are not in violation of any of said permitting
or licensing requirements.
(o) Tax Matters. All federal, state and other tax returns of AAII
required by law to be filed have been timely filed, and AAII has paid or
adequately provided for all taxes (including taxes on properties, income,
franchises, licenses, sales and payrolls) which have become due pursuant to such
returns or pursuant to any assessment, except for any taxes and assessments, the
amount, applicability or validity of which is currently being contested in good
faith by appropriate proceedings and with respect to which AAII has set aside on
its books adequate reserves. There are no tax liens on any of AAII's assets
except those with respect to taxes not yet due and payable. There are no pending
tax examinations of AAII's tax returns nor has AAII received a revenue agent's
report asserting a tax deficiency in the last twelve (12) months. There are not
and will not be at the Closing Date, any claims pending or asserted against AAII
for unpaid taxes by any federal, state or other governmental body. AAII has
withheld from each payment made to employees of AAII the amount of all taxes
(including, but not limited to, federal, state and local income taxes and
Federal Insurance Contribution Act taxes) required to be withheld therefrom and
all amounts customarily withheld therefrom, and has set aside all other employee
contributions or payments customarily set aside with respect to such wages and
has paid or will pay the same to, or has deposited or will deposit such payment
with, the proper tax receiving officers or other appropriate authorities.
(p) Employee Benefit Plans.
(i) List of Plans. Section 3(p) of the Disclosure Schedule
contains an accurate and complete list of all employee benefit plans
("Employee Benefit Plans") within the meaning of Section 3(3) of ERISA,
whether or not any Employee Benefit Plans are otherwise exempt from the
provisions of ERISA, established, maintained or contributed to by AAII
(including all employers (whether or not incorporated) which by reason
of common control are treated together with AAII and/or the
Shareholders as a single employer within the meaning of Section 414 of
the Code) since September 2, 1974.
(ii) Status of Plans. AAII has never maintained and does not
now maintain or contribute to any Employee Benefit Plan subject to
ERISA, which is not in substantial compliance with ERISA or which has
incurred any accumulated funding deficiency within the meaning of
Section 412 or 418B of the Code, or which has applied for or obtained a
waiver from the Internal Revenue Service of any minimum funding
requirement under Section 412 of the Code or which is subject to Title
IV of ERISA. AAII has not incurred any liability to the Pension Benefit
Guaranty Corporation ("PBGC") in connection with any Employee Benefit
Plan covering any employees of AAII or ceased operations at any
facility or withdrawn from any such Plan in a manner which could
subject it to liability under Section 4062(f), 4063 or 4064 of ERISA,
and knows of no facts or circumstances which might give rise to any
liability of AAII to the PBGC under Title IV of ERISA which could
reasonably be anticipated to result in any claims being made against
AAII by the PBGC. AAII has not incurred any withdrawal liability
(including any contingent or secondary withdrawal liability) within the
meaning of Sections 4201 and 4202 of ERISA, to any Employee Benefit
Plan which is a Multiemployer Plan (as defined in Section 4001 of
ERISA), and no event has occurred, and there exists no condition or set
of circumstances, which represent a material risk of the occurrence of
any withdrawal from or the partition, termination,
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reorganization or insolvency of any Multiemployer Plan which would
result in any liability of AAII.
(iii) Contributions. Full payment has been made of all amounts
which AAII is required, under applicable law or under any Employee
Benefit Plan or any agreement relating to any Employee Benefit Plan to
which AAII is a party, to have paid as contributions thereto as of the
last day of the most recent plan year of such Employee Benefit Plan
ended prior to the date hereof. AAII has made adequate provision for
reserves to meet contributions that have not been made because they are
not yet due under the terms of any Employee Benefit Plan or related
agreements. Benefits under all Employee Benefit Plans are as
represented and have not been increased subsequent to the date as of
which documents have been provided.
(iv) Tax Qualification. Each Employee Benefit Plan intended to
be qualified under Section 401(a) of the Code has been determined to be
so qualified by the Internal Revenue Service and, nothing has occurred
since the date of the last such determination which resulted or is
likely to result in the revocation of such determination.
(v) Transactions. AAII has not engaged in any transaction with
respect to the Employee Benefit Plans which would subject it to a
material tax, penalty or liability for prohibited transactions under
ERISA or the Code nor have any of its directors, officers or employees
to the extent they or any of them are fiduciaries with respect to such
plans, breached any of their responsibilities or obligations imposed
upon fiduciaries under Title I of ERISA which would result in any
material claim being made under or by or on behalf of any such plans by
any party with standing to make such claim.
(vi) Other Plans. AAII presently does not maintain any
Employee Benefit Plans or any other foreign pension, welfare or
retirement benefit plans other than those listed on Section 3(p) of the
Disclosure Schedule.
(vii) Documents. AAII has delivered or caused to be delivered
to SCN true and complete copies of (i) all Employee Benefit Plans as in
effect, together with all amendments thereto which will become
effective at a later date, as well as the latest IRS determination
letter obtained with respect to any such Employee Benefit Plan
qualified under Section 401 or 501 of the Code, and (ii) the most
recently filed Form 5500 for each Employee Benefit Plan required to
file such form.
(q) Third-Party Relations. AAII has not received any notice that any
material patient, supplier, employee or associated physician intends to cease
doing business with AAII.
(r) Compliance with Applicable Laws. AAII has operated in compliance
with all federal, state, county and municipal laws, constitutions, ordinances,
statutes, rules, regulations and orders applicable thereto ("Applicable Laws").
No item disclosed in Section 3(r) of the Disclosure Schedule could have a
material effect on SCN. Neither AAII nor any physician associated with or
employed by AAII has received payment or any remuneration whatsoever to induce
or encourage the referral of patients or the purchase of goods and/or services
as prohibited under 42 U.S.C. ss. 1320a-7b(b), or otherwise perpetrated any
Medicare or Medicaid fraud or abuse nor has any fraud or abuse been alleged
within the last five (5) years by any government agency.
(s) Employee Compensation. AAII has paid or discharged or will pay or
discharge or assume all liabilities for compensation and benefits to which all
employees, including physician employees, are entitled through the Closing
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Date, including but not limited to all salaries, wages, bonuses, incentive
compensation, payroll taxes, hospitalization and medical expenses, deferred
compensation, and vacation and sick pay, as well as any severance pay becoming
due as a result of the termination of certain of AAII's employees.
(t) Environmental Matters.
(i) AAII is in full compliance with all applicable
Environmental Laws.
(ii) AAII has not authorized or conducted the disposal or
release, or other handling of any Medical Waste, hazardous substance,
hazardous waste, hazardous material, hazardous constituent, toxic
substance, pollutant, contaminant, asbestos, radon, polychlorinated
biphenyls ("PCBs"), petroleum product or waste (including crude oil or
any fraction thereof), natural gas, liquefied gas, synthetic gas,
biohazardous or biomedical material, or other material defined,
regulated controlled or potentially subject to any remediation
requirement under any Environmental Law (collectively "Hazardous
Materials"), on, in, under or affecting or any property owned or leased
by AAII.
(iii) AAII has, and is in compliance with, all licenses,
permits, registrations, and government authorizations necessary to
operate under all applicable Environmental Laws. Section 3(t) of the
Disclosure Schedule lists all such licenses, permits, registrations and
government authorizations required by any Environmental Law.
(iv) AAII has not received any written or oral notice from any
governmental agency or entity or any other Person and there is no
pending or threatened claim, litigation or any administrative agency
proceeding that: (a) alleges a violation of any Environmental Law(s) by
AAII or, with respect to the Purchased Assets or any property owned or
leased by AAII, (b) alleges that AAII is a liable party or potentially
responsible party under the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. ss. 9601, et seq., or any
analogous state law, (c) has resulted or could result in the attachment
of an environmental lien on any of the Purchased Assets or property
owned or leased by AAII or (d) alleges that AAII is liable for any
contamination of the environment, contamination of any property owned
or leased by AAII, damage to natural resources, property damage, or
personal injury based on its activities or the activities of any
predecessor or third parties involving Hazardous Materials, whether
arising under the Environmental Laws, common law principles, or other
legal standards.
(v) With respect to the generation, transportation, treatment,
storage and disposal or other handling of Medical Waste, AAII has
complied with all Medical Waste Laws.
(u) Healthcare Compliance. AAII is participating in or otherwise
authorized to receive reimbursement from Medicare and Medicaid and is a party to
other third-party payor agreements, if any, discussed in Section 3(i) of the
Disclosure Schedule. All necessary certifications and contracts required for
participation in such programs are in full force and effect and have not been
amended or otherwise modified, rescinded, revoked or assigned, and no condition
exists or event has occurred which in itself or with the giving of notice or the
lapse of time or both would result in the suspension, revocation, impairment,
forfeiture or non-renewal of any such third-party payor program. AAII is in
compliance in all material respects with the requirements of all such
third-party payors. AAII, the Shareholders, and its physician employees do not
have any financial relationship (whether investment interest, compensation
interest, or otherwise) with any entity to which any of the foregoing refer
patients, except for such financial relationships that qualify for exceptions to
state and federal laws restricting physician referrals to entities in which they
have a financial interest.
(v) Fraud and Abuse. AAII, the Shareholders, and persons and entities
providing professional services for AAII have not engaged in any activities
which are prohibited under 42 U.S.C. ss. 1320a-7b, or the regulations
promulgated thereunder pursuant to such statutes, or related state or local
statutes or regulations, or which are prohibited
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by rules of professional conduct, including the following: (a) knowingly and
willfully making or causing to be made a false statement or representation of a
material fact in any application for any benefit or payment; (b) knowingly and
willfully making or causing to be made any false statement or representation of
a material fact for use in determining rights to any benefit or payment; (c)
failing to disclose knowledge by a claimant of the occurrence of any event
affecting the initial or continued right to any benefit or payment on its own
behalf or on behalf of another, with intent to fraudulently secure such benefit
or payment; or (d) knowingly and willfully soliciting or receiving any
remuneration (including any kickback, bribe, or rebate), directly or indirectly,
overtly or covertly, in cash or in kind or offering to pay or receive such
remuneration (1) in return for referring an individual to a person for the
furnishing or arranging for the furnishing or any item or service for which
payment may be made in whole or in part by Medicare or Medicaid or (2) in return
for purchasing, leasing, or ordering or arranging for or recommending
purchasing, leasing or ordering any good, facility, service or item for which
payment may be made in whole or in part by Medicare or Medicaid.
(w) Practice Compliance. AAII is lawfully operated in accordance with
the requirements of all Applicable Laws and has all necessary authorizations for
the conduct of its business, all of which are in full force and effect. There
are no outstanding notices of deficiencies relating to AAII issued by any
governmental authority or third-party payor requiring conformity or compliance
with any applicable law or condition for participation with such governmental
authority or third-party payor, and after reasonable and independent inquiry and
due diligence and investigation, AAII has neither received notice nor has any
Knowledge or reason to believe that such necessary authorizations may be revoked
or not renewed in the Ordinary Course of Business.
(x) Rates and Reimbursement Policies. The jurisdiction in which AAII is
located does not currently impose any restrictions or limitations on rates which
may be charged to private pay patients receiving services provided by AAII. AAII
does not have any rate appeal currently pending before any governmental
authority or any administrator of any third-party payor program. No Applicable
Law which affects rates or reimbursement procedures has been enacted,
promulgated or issued within the eighteen (18) months preceding the date of this
Agreement and no such legal requirement is proposed or currently pending in the
jurisdiction in which AAII is located, which could have a material adverse
effect on AAII or may result in the imposition of additional Medicaid, Medicare,
charity, free care, welfare, or other discounted or government assisted patients
at AAII or require AAII to obtain any necessary authorization which AAII does
not currently possess.
(y) Accounts Receivable. All accounts receivable, unbilled invoices and
other debts due or recorded in the respective records and books of account of
AAII, as being due to AAII, (i) are valid, existing and are collectible within
one hundred eighty (180) days following the date of this Agreement without
resort to legal proceedings or use of collection agencies, (ii) have arisen in
the Ordinary Course of Business, and (iii) none of such accounts receivable or
other debts is or will at the Closing Date be subject to any counterclaim or
set-off. There has been no material adverse change since May 31, 1997 in the
amount of accounts receivable or other debts due AAII, the allowances with
respect thereto, or accounts payable of AAII from that reflected in the most
recent balance sheet previously delivered by AAII to SCN.
(z) Guaranties. AAII is not a guarantor and otherwise is not liable for
any liability or obligation (including indebtedness) of any other Person.
(aa) Powers of Attorney. There are no outstanding powers of attorney
executed by AAII, except as may be contained in financing documents or security
agreements listed in Section 3(i) of the Disclosure Schedule.
(bb) Tangible Assets. AAII owns or leases all land, buildings,
machinery, equipment, and other tangible assets necessary for the conduct of its
business as presently conducted. Each tangible asset is free from defects has
been maintained in accordance with normal industry practice and is in good
operating condition and repair (subject to normal wear and tear).
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(cc) Full Disclosure. No representation or warranty made by AAII in
this Agreement contains or will contain any untrue statement of a material fact
or omits or will omit to state a material fact necessary to make the statements
contained herein or therein not materially misleading.
4. Representations and Warranties of SCN. SCN represents and warrants
to AAII that the statements contained in this Section 4 are correct and complete
as of the date of this Agreement and will be correct and complete as of the
Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Section 4), except as
set forth in the Disclosure Schedule. The Disclosure Schedule will be arranged
in paragraphs corresponding to the numbered and lettered paragraphs contained in
this Section 4.
(a) Organization. SCN is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Delaware.
(b) Authorization of Transaction. SCN has full power and authority
(including full corporate power and authority) to execute and deliver this
Agreement, to issue the SCN Shares to be issued in connection with this
Agreement and otherwise to perform its obligations hereunder; provided, however,
that SCN cannot consummate the transaction unless and until it receives the
Requisite SCN Board of Directors Approval. Except as set forth in the preceding
sentence, this Agreement constitutes the valid and legally binding obligation of
SCN, enforceable in accordance with its terms and conditions.
(c) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge or other restriction of any government,
governmental agency, professional regulatory organization or court to which SCN
is subject or may become subject as a result of the transaction contemplated by
this Agreement, or any provision of the charter or bylaws of SCN or (ii)
conflict with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, modify,
or cancel, or require any notice under any agreement, contract, lease, license,
instrument or other arrangement to which SCN is a party or by which it is bound
or to which any of its assets is subject. Other than state and federal filings
required by the Securities Act and similar state statutes, SCN does not need to
give any notice to, make any filing with, or obtain any authorization, consent,
or approval of any government or governmental agency in order for the Parties to
consummate the transactions contemplated by this Agreement.
(d) Brokers' Fees. SCN does not have any liability or obligation to pay
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which SCN could become liable or
obligated.
(e) Securities Filings. All reports and statements filed with respect
to SCN pursuant to the Securities Act or the Securities Exchange Act conform to
the requirements of the Securities Act and the Securities Exchange Act and the
rules and regulations promulgated thereunder and did not include at the time of
filing such document any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading.
5. Covenants. The Parties agree as follows with respect to the period
from and after the execution of this Agreement.
(a) General. Each of the Parties will use its or his best efforts to
take all action and to do all things necessary in order to consummate and make
effective the transactions contemplated by this Agreement (including
satisfaction of the closing conditions set forth in Section 6 below) to be
satisfied by him or it. This Section 5(a) shall not be construed to obligate any
of the Parties to waive any condition precedent to his or its obligations to
perform hereunder.
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<PAGE>
(b) Notices and Consents. AAII will give any notices to third parties,
and will use its best efforts to obtain any third party consents, necessary or
required to consummate the transaction or that SCN reasonably may request in
connection with the matters referred to in Section 3(i) above.
(c) Regulatory Matters and Approvals. Each of the Parties will give any
notices to, make any filings with, and use its reasonable best efforts to obtain
any authorizations, consents, and approvals of governments and governmental
agencies in connection with the transactions contemplated by this Agreement.
(d) Operation of Business. From the date of this Agreement through the
Closing Date, AAII will not engage in any practice, take any action, or enter
into any transaction outside the Ordinary Course of Business. Without limiting
the generality of the foregoing:
(i) AAII will not authorize or effect any change in its
Articles of Incorporation or bylaws;
(ii) AAII will not grant any options, warrants, or other
rights to purchase or obtain any of its shares or issue, sell, or
otherwise dispose of any of its shares;
(iii) AAII will not declare, set aside, or pay any dividend or
distribution with respect to its shares (whether in cash or in kind),
or redeem, repurchase, or otherwise acquire any of its shares in either
case outside the Ordinary Course of Business without the consent of
SCN, which consent shall not be unreasonably withheld;
(iv) AAII will not issue any note, bond, or other debt
security or create, incur, assume, or guarantee any indebtedness for
borrowed money or capitalized lease obligation outside the Ordinary
Course of Business;
(v) AAII will not impose any Security Interest upon any of its
assets outside the Ordinary Course of Business;
(vi) AAII will not make any capital investment in, make any
loan to, or acquire the securities or assets of any other Person
outside the Ordinary Course of Business;
(vii) AAII will not make any change in employment terms for
any of the Shareholders or its managers, officers, and employees
outside the Ordinary Course of Business; and
(viii) AAII will not commit to do any of the foregoing.
(e) Further Acts and Assurances. AAII and the Shareholders shall, at
any time and from time to time at and after the Closing, upon request of SCN,
take any and all steps necessary to place SCN in possession and operating
control of the Purchased Assets, and will do, execute, acknowledge and deliver,
or will cause to be done, executed, acknowledged and delivered, all such further
acts, deeds, assignments, transfers, conveyances, powers of attorney and
assurances as may be required for the better transferring and confirming to SCN
or its successors or assigns, or for reducing to possession, any or all of the
Purchased Assets.
(f) Full Access. Upon three (3) days prior notice, AAII will permit
representatives of SCN to have full access to all premises, properties,
personnel, books, records (including tax records), contracts, and documents of
or pertaining to AAII during normal business hours. SCN (i) will treat and hold
as such any confidential information it receives from AAII in the course of the
reviews contemplated by this Section 5(f), (ii) will not use any of the
confidential information except in connection with this Agreement, and (iii) if
this Agreement is terminated for any reason whatsoever, agrees to return to AAII
all tangible embodiments (and all copies) thereof which are in its possession.
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<PAGE>
(g) Notice of Developments. Each Party will give prompt written notice
to the other Parties of any material adverse development causing a breach of any
of its own representations and warranties in Section 3 or Section 4 above. No
disclosure by any Party pursuant to this Section 5(g), however, shall be deemed
to amend or supplement the Disclosure Schedule or to prevent or cure any
misrepresentation, breach of warranty, or breach of covenant.
(h) Exclusivity. Until the earlier of (i) July 31, 1997 or (ii) the
Closing Date, AAII will not solicit, initiate, or encourage the submission of
any proposal or offer from any Person relating to the acquisition of all or
substantially all of the capital stock or assets of AAII (including any
acquisition structured as a merger, consolidation, or share exchange). AAII
shall notify SCN immediately if any Person makes any proposal, offer, inquiry,
or contact with respect to any of the foregoing.
(i) Collection of Accounts Receivable. The Shareholders agree to
cooperate with SCN in the collection of accounts receivable owned by AAII as of
the Closing Date acquired pursuant to this Agreement. SCN, at its option, shall
have the right to require the collection of said accounts receivable through a
lockbox or bank account sweep arrangement. In connection therewith, the
Shareholders agree to execute the necessary documents and follow the necessary
procedures as described in the Service Agreement to accommodate the collection
of the accounts receivable in such manner.
(j) Corporate Authorization. By execution of this Agreement, the
Shareholders agree to take any and all steps necessary and will do, execute,
acknowledge and deliver, or will cause to be done, executed, acknowledged and
delivered, all such acts, deeds and assurances required in order to consummate
the transactions contemplated by this Agreement, including voting as directors
of AAII in favor of the transactions contemplated by this Agreement and voting
as an owner of AAII in favor of the transactions contemplated by this Agreement
at any meeting (or in any action by written consent) required by the Texas
Business Corporation Act.
(k) Malpractice Insurance. On or before the Closing, all physicians and
employees of AAII shall be covered by medical malpractice insurance and, if
required by SCN, medical malpractice tail insurance to cover prior occurrences
shall be procured by AAII.
(l) Employee Benefit Plans. Prior to the Closing Date, all Employee
Benefit Plans shall be terminated in accordance with, and to the extent required
by, Applicable Law.
6. Conditions to Obligation to Close.
(a) Conditions to Obligation of SCN. The obligation of SCN to
consummate the transactions contemplated by this Agreement is subject to
satisfaction of the following conditions:
(i) AAII shall have procured all of the third party consents
specified in Section 5(b) above;
(ii) the representations and warranties set forth in Section 3
above shall be true and correct in all material respects at and as of
the Closing Date;
(iii) AAII shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(iv) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency
of any federal, state, local, or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction, judgment, order, decree,
ruling, or charge would (A) prevent consummation of any of the
transactions contemplated by this Agreement, (B) cause any of the
transactions contemplated by this
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<PAGE>
Agreement to be rescinded following consummation, or (C) affect
adversely the right of SCN to own the Purchased Assets;
(v) all actions to be taken by AAII in connection with
consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby, have been taken or
delivered to SCN and are satisfactory in form and substance to SCN;
(vi) SCN shall have completed and be satisfied with its due
diligence review;
(vii) On or before the Closing Date, the transactions
contemplated by (i) the Merger Agreement between SCN, Neal C. Small,
M.D., P.A., and Neal C. Small, M.D. dated July 3, 1997, (ii) the Merger
Agreement between SCN, Neal C. Small, M.D. & Associates, P.A. and Neal
C. Small, M.D. dated July 3, 1997, (iii) the Merger Agreement between
SCN, Alexander I. Glogau, M.D., P.A., and Alexander I. Glogau, M.D.
dated July 3, 1997, (iv) the Asset Purchase Agreement between SCN,
Allied Health Services, P.,A. and Neal C. Small, M.D. dated July 3,
1997, and (v) the Asset Purchase Agreement between SCN, Access Medical
Supply, Alexander I. Glogau, M.D. and Neal C. Small, M.D., dated July
3, 1997, shall have been consummated; and
(viii) SCN's Board of Directors shall have approved the
transactions contemplated by this Agreement in their sole and absolute
discretion.
SCN may waive any condition specified in this Section 6(a) if it executes a
writing so stating at or prior to the Closing.
(b) Conditions to Obligation of AAII. The obligation of AAII to
consummate the transactions contemplated by this Agreement is subject to
satisfaction of the following conditions:
(i) the transactions contemplated by this Agreement shall be
approved by AAII's Board of Directors and shall receive the Requisite
AAII Approval;
(ii) the representations and warranties set forth in Section 4
above shall be true and correct in all material respects at and as of
the Closing Date;
(iii) SCN shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing; and
(iv) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency
of any federal, state, local or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction, judgment, order, decree,
ruling or charge would (A) prevent consummation of any of the
transactions contemplated by this Agreement, (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation, or (C) affect adversely the right of SCN to own the
Purchased Assets.
AAII may waive any condition specified in this Section 6(b) if it executes a
writing so stating at or prior to the Closing.
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<PAGE>
7. Items to be Delivered at or Prior to Closing.
(a) By the Shareholders or AAII. The Shareholders or AAII, as
applicable, shall execute and deliver to SCN, prior to or at the Closing:
(i) Certified resolutions of AAII authorizing the execution of
all documents and the consummation of all transactions contemplated
hereby;
(ii) A Bill of Sale in substantially the form attached hereto
as Exhibit 7(a)(ii);
(iii) A Service Agreement in substantially the form attached
hereto as Exhibit 7(a)(iii);
(iv) A certificate duly executed by the President of AAII that
as of the Closing Date, all representations and warranties of AAII are
true and correct, all covenants and agreements contained in the
Agreement to be performed by AAII have been performed or complied with,
and all conditions to Closing have been satisfied.
(v) An opinion from AAII's counsel in substantially the form
attached hereto as Exhibit 7(a)(v); and
(vi) Such other instruments as may be reasonably requested by
SCN in order to effect to or carry out the intent of this Agreement.
(b) By SCN. SCN shall deliver to AAII at or prior to the Closing:
(i) Certified resolutions of SCN authorizing the execution of
all documents and the consummation of all transactions contemplated
thereby;
(ii) The Purchase Price;
(iii) An opinion from SCN's counsel in substantially the form
attached hereto as Exhibit 7(b)(ii);
(iv) A certificate, duly executed by the President of SCN,
stating as of the Closing Date, all representations and warranties of
SCN are true, all covenants and agreements contained in the Agreement
to be performed by SCN have been performed or complied with and all
conditions to Closing have been satisfied;
(v) a Service Agreement in substantially the form attached
hereto as Exhibit 7(a)(iii); and
(vi) Such other instruments as may be reasonably requested by
the Shareholders in order to effect to or carry out the intent of this
Agreement.
8. Termination.
(a) Termination of Agreement. Either of the Parties may terminate this
Agreement with the prior authorization of its board of directors (whether before
or after stockholder approval) as provided below:
(i) the Parties may terminate this Agreement by mutual written
consent at any time prior to the Closing Date;
(ii) SCN may terminate this Agreement by giving written notice
to AAII at any time prior to the Closing Date (A) in the event AAII has
breached any representation, warranty, or covenant contained in this
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<PAGE>
Agreement in any material respect, SCN has notified AAII of the breach,
and the breach has continued without cure for a period of 30 days after
the notice of breach or (B) if the Closing shall not have occurred on
or before July 31, 1997 by reason of the failure of any condition
precedent under Section 6(a) hereof (unless the failure results
primarily from SCN breaching any representation, warranty, or covenant
contained in this Agreement); or
(iii) AAII may terminate this Agreement by giving written
notice to SCN at any time prior to the Closing Date (A) in the event
SCN has breached any representation, warranty, or covenant contained in
this Agreement in any material respect, AAII has notified SCN of the
breach, and the breach has continued without cure for a period of 30
days after the notice of breach or (B) if the Closing shall not have
occurred on or before July 31, 1997 by reason of the failure of any
condition precedent under Section 6(b) hereof (unless the failure
results primarily from AAII breaching any representation, warranty, or
covenant contained in this Agreement).
(b) Effect of Termination. If any Party terminates this Agreement
pursuant to Section 8(a) above, all rights and obligations of the Parties
hereunder shall terminate without any liability of any Party to any other Party
(except for any liability of any Party then in breach).
9. Indemnification.
(a) Indemnification by AAII and the Shareholders. AAII and the
Shareholders agree to and shall jointly and severally defend, indemnify and hold
harmless SCN, its successors and assigns, officers and directors against any and
all losses, liabilities, expenses (including without limitation reasonable
attorney's fees) and damages resulting from or arising out of the breach,
untruth or inaccuracy of any representation, warranty or covenant of AAII or the
Shareholders set forth in this Agreement. Neither AAII nor the Shareholders
shall be liable to SCN for any claims against AAII or the Shareholders under
this Section 9(a) unless and until the aggregate of all claims against AAII or
the Shareholders exceeds the sum of $25,000.00, whereupon SCN shall be entitled
to recover the full amount of all claims, including the initial $25,000.00.
(b) Notice to AAII and the Shareholders; Opportunity to Defend. SCN
agrees to give prompt notice to AAII and the Shareholders of the assertion of
any claim, or the commencement of any suit, action or proceeding, in respect of
which indemnity may be sought under Section 9(a). AAII and the Shareholders may
participate in and at their election, or at the request of SCN, assume the
defense of any such suit, action or proceeding at AAII or the Shareholders'
expense. Neither AAII nor the Shareholders shall be liable under Section 9(a)
for any settlement effected without their consent of any claim, litigation or
proceeding in respect of which indemnity may be sought under Section 9(a) which
consent shall not be unreasonably withheld.
(c) General Indemnification by SCN. SCN agrees to and shall defend,
indemnify and hold harmless the Shareholders, their heirs and assigns against
any and all losses, liabilities, expenses (including without limitation
reasonable attorneys' fees) and damages resulting from the breach, untruth or
inaccuracy of any representation, warranty or covenant of SCN set forth in this
Agreement. SCN shall not be liable to the Shareholders for any claims against
SCN under this Section 9(c) unless and until the aggregate of all claims against
SCN exceeds the sum of $25,000.00, whereupon the Shareholders shall be entitled
to recover the full amount of all claims, including the initial $25,000.00.
(d) Notice to SCN; Opportunity to Defend. The Shareholders agree to
give prompt notice to SCN of the assertion of any claim, or the commencement of
any suit, action or proceeding in respect of which indemnity may be sought under
Section 9(c). SCN may participate in and at its election, or at the request of
the Shareholders, assume the defense of any such suit, action or proceeding at
SCN's expense. SCN shall not be liable under Section 9(c) for any settlement
effected without its consent of any claim, litigation or proceeding in respect
of which indemnity may be sought hereunder, which consent shall not be
unreasonably withheld.
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<PAGE>
(e) Right of Setoff. In the event of any breach of warranty,
representation, covenant or agreement by AAII or the Shareholders giving rise to
indemnification to SCN under Section 9(a) hereof, SCN shall be entitled to
offset the amount of damages incurred by it as a result of such breach of
warranty, representation, covenant or agreement against the amounts payable to
the Shareholders or AAII under the Service Agreement. In the event that SCN
determines that an amount is to be so offset, as a condition precedent to such
right of setoff, SCN shall give the Shareholders written notice of the amount of
such proposed setoff and the basis therefor within thirty (30) days after the
date on which such amount is finally determined. If SCN shall not have received
written notice from the Shareholders contesting such setoff within twenty (20)
days of their receipt of such written notice from SCN, the setoff shall be
deemed to have been consented to by the Shareholders, and SCN shall be entitled
to deduct the entire amount claimed as a setoff from the next succeeding amounts
payable under the Service Agreement. In the event that the Shareholders shall
object to the proposed setoff by written notice received by SCN during such
twenty (20) day period, the entitlement of SCN to the claimed setoff shall be
determined as set forth in Section 10.4.3 of the Service Agreement.
10. Miscellaneous.
(a) Survival. The representations and warranties of the Shareholders,
AAII and SCN contained in this Agreement and the indemnifications contained
herein shall survive the Closing. No claim for indemnification with respect to
any alleged misrepresentation or breach of warranty may be made after three (3)
years following the Closing Date. Any matter to which indemnification pertains
and with respect to which a claim has been asserted or threatened following the
Closing Date shall continue to be subject to the indemnification under this
Agreement until finally terminated, settled, resolved or adjudicated; and all
terms, conditions and stipulations of this Agreement shall likewise continue to
apply.
(b) No Third-Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
(c) Entire Agreement. This Agreement (including the documents referred
to herein) constitutes the entire agreement between the Parties and supersedes
any prior understandings, agreements, or representations by or between the
Parties, written or oral, to the extent they related in any way to the subject
matter hereof.
(d) Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other Party.
(e) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(f) Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(g) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
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<PAGE>
If to AAII: Copy to:
Alexander I. Glogau, M.D. Loren Weinstein
Neal C. Small, M.D. 4031 West Plano Parkway
4031 West Plano Parkway Plano, Texas 75093
Plano, Texas 75093 Facsimile: (972) 964-3469
Facsimile: (972) 964-3469
If to SCN: Copy to:
Kerry R. Hicks, President David T. Popwell
Specialty Care Network, Inc. Baker, Donelson, Bearman & Caldwell
44 Union Boulevard, Suite 600 165 Madison Ave., Ste. 2000 Madison
Lakewood, Colorado 80228 Ave, Suite 2100
Facsimile: (303) 716-1298 Memphis, Tennessee 38103
Facsimile: (901) 577-2303
Any party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other party
notice in the manner herein set forth.
(h) Governing Law Venue. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of Texas without
giving effect to any choice or conflict of law provision or rule (whether of the
State of Texas or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of Texas. Each of the parties
submits to the jurisdiction of any state or federal court sitting in Denver,
Colorado, in any action or proceeding arising out of or relating to this
Agreement and agrees that all claims in respect of the action or proceeding may
be heard and determined in any such court. Each party also agrees not to bring
any action or proceeding arising out of or relating to this Agreement in any
other court. Each of the parties waives any defense of inconvenient forum to the
maintenance of any action or proceeding so brought and waives any bond, surety,
or other security that might be required of any other party with respect
thereto.
(i) Amendments and Waivers. The Parties may mutually amend any
provision of this Agreement at any time prior to the Effective Time with the
prior authorization of their respective boards of directors; provided, however,
that any amendment effected subsequent to stockholder approval will be subject
to the restrictions contained in the Texas Business Corporation Act. No
amendment of any provision of this Agreement shall be valid unless the same
shall be in writing and signed by each of the Parties. No waiver by any party of
any default, misrepresentation, or breach of warranty or covenant hereunder,
whether intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
(j) Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
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<PAGE>
(k) Expenses. Each of the Parties will bear its own costs and expenses
(including legal fees and expenses) incurred in connection with this Agreement
and the transactions contemplated hereby.
(l) Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context otherwise requires. The
word "including" shall mean including without limitation.
(m) No Referrals Required. The Parties agree that no part of this
Agreement shall be construed to induce or encourage the referral of patients or
the purchase of health care services or supplies. The Parties acknowledge that
there is no requirement under this Agreement or any other agreement between AAII
and SCN that any party refer any patients to any health care provider or
purchase any health care goods or services from any source. Additionally, no
payment under this Agreement is in return for the referral of patients, if any,
or in return for purchasing, leasing or ordering services from SCN or any of
SCN's affiliates. The Parties may refer patients to any company or person
providing services and will make such referrals, if any, consistent with
professional medical judgment and the needs and wishes of the relevant patients.
(n) Incorporation of Exhibits and Schedules. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
* * * * *
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
SCN:
SPECIALTY CARE NETWORK, INC.
By:
----------------------------------
Title:
-------------------------------
AAII:
ASSOCIATED ARTHROSCOPY INSTITUTE, INC.
By:
----------------------------------
Title:
-------------------------------
SHAREHOLDERS:
--------------------------------------
ALEXANDER I. GLOGAU, M.D.
--------------------------------------
NEAL C. SMALL, M.D.
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<PAGE>
ASSET PURCHASE AGREEMENT
By and Among
SPECIALTY CARE NETWORK, INC.,
ACCESS MEDICAL SUPPLY, INC. D/B/A ASSOCIATED PHYSICAL THERAPY
ALEXANDER I. GLOGAU, M.D.
and
NEAL C. SMALL, M.D.
Dated as of July 3, 1997
<PAGE>
TABLE OF CONTENTS
-----------------
(This Table of Contents is not a part of the Agreement and is only for
convenience of reference.)
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Definitions...................................................................................................1
2. Basic Transaction.............................................................................................4
(a) Purchase and Sale of Assets.........................................................................4
(b) Assumption of Liabilities...........................................................................4
(c) Purchase Price......................................................................................5
(d) The Closing.........................................................................................5
(e) Deliveries at Closing...............................................................................5
(f) Proration...........................................................................................5
(g) Taxes and Expenses..................................................................................5
(h) Allocation..........................................................................................6
(i) Employees...........................................................................................6
3. Representations and Warranties of APT and the Shareholders....................................................6
(a) Organization, Qualification, and Power..............................................................6
(b) Ownership Interest of APT...........................................................................6
(c) Authorization of Transaction........................................................................6
(d) Noncontravention....................................................................................6
(e) Subsidiaries and Investments........................................................................7
(f) Financial Statements................................................................................7
(g) Undisclosed Liabilities.............................................................................7
(h) Brokers' Fees.......................................................................................7
(i) Material Contracts..................................................................................7
(j) Insurance; Malpractice..............................................................................8
(k) No Changes Prior to Closing Date....................................................................8
(l) Title; Condition....................................................................................9
(m) Litigation..........................................................................................9
(n) Permits and Licenses................................................................................9
(o) Tax Matters.........................................................................................9
(p) Employee Benefit Plans..............................................................................9
(q) Third-Party Relations..............................................................................11
(r) Compliance with Applicable Laws....................................................................11
(s) Employee Compensation..............................................................................11
(t) Environmental Matters..............................................................................11
(u) Healthcare Compliance..............................................................................12
(v) Fraud and Abuse....................................................................................12
(w) Practice Compliance................................................................................12
(x) Rates and Reimbursement Policies...................................................................12
(y) Accounts Receivable................................................................................12
(z) Guaranties.........................................................................................13
(aa) Powers of Attorney................................................................................13
(bb) Tangible Assets...................................................................................13
(cc) Full .............................................................................................13
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
4. Representations and Warranties of SCN........................................................................13
(a) Organization.......................................................................................13
(b) Authorization of Transaction.......................................................................13
(c) Noncontravention...................................................................................13
(d) Brokers' Fees......................................................................................14
(e) Securities Filings.................................................................................14
5. Covenants....................................................................................................14
(a) General............................................................................................14
(b) Notices and Consents...............................................................................14
(c) Regulatory Matters and Approvals...................................................................14
(d) Operation of Business..............................................................................14
(e) Further Acts and Assurances........................................................................15
(f) Full Access........................................................................................15
(g) Notice of Developments.............................................................................15
(h) Exclusivity........................................................................................15
(i) Collection of Accounts Receivable..................................................................15
(j) Corporate Authorization............................................................................15
(k) Malpractice Insurance..............................................................................15
(l) Employee Benefit Plans.............................................................................16
6. Conditions to Obligation to Close............................................................................16
(a) Conditions to Obligation of SCN....................................................................16
(b) Conditions to Obligation of APT....................................................................17
7. Items to be Delivered at or Prior to Closing.................................................................17
(a) By the Shareholders or APT.........................................................................17
(b) By SCN.............................................................................................17
8. Termination..................................................................................................18
(a) Termination of Agreement...........................................................................18
(b) Effect of Termination..............................................................................18
9. Indemnification..............................................................................................18
(a) Indemnification by APT and the Shareholders........................................................18
(b) Notice to APT and the Shareholders; Opportunity to Defend..........................................19
(c) General Indemnification by SCN.....................................................................19
(d) Notice to SCN; Opportunity to Defend...............................................................19
(e) Right of Setoff....................................................................................19
10. Miscellaneous...............................................................................................19
(a) Survival...........................................................................................19
(b) No Third-Party Beneficiaries.......................................................................20
(c) Entire Agreement...................................................................................20
(d) Succession and Assignment..........................................................................20
(e) Counterparts.......................................................................................20
(f) Headings...........................................................................................20
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
(g) Notices............................................................................................20
(h) Governing Law Venue................................................................................20
(i) Amendments and Waivers.............................................................................21
(j) Severability.......................................................................................21
(k) Expenses...........................................................................................21
(l) Construction.......................................................................................21
(m) No Referrals Required..............................................................................21
(n) Incorporation of Exhibits and Schedules............................................................21
</TABLE>
<TABLE>
<S> <C>
SCHEDULE 1(a) REAL PROPERTY...................................................Schedule 1(a)-1
SCHEDULE 1(b) FURNITURE, FIXTURES & EQUIPMENT.................................Schedule 1(b)-1
SCHEDULE 1(d) LEASES OF PERSONAL PROPERTY.....................................Schedule 1(d)-1
SCHEDULE 2(b) ASSUMED LIABILITIES.............................................Schedule 2(b)-1
EXHIBIT 2(h) PURCHASE PRICE ALLOCATION AGREEMENT..............................Exhibit 2(h)-1
EXHIBIT 7(a)(ii) BILL OF SALE.................................................Exhibit 7(a)(ii)-1
EXHIBIT 7(a)(iii) SERVICE AGREEMENT...........................................Exhibit 7(a)(iii)-1
EXHIBIT 7(a)(v) APT OPINION LETTER............................................Exhibit 7(a)(v)-1
EXHIBIT 7(b)(ii) SCN OPINION LETTER...........................................Exhibit 7(b)(ii)-1
</TABLE>
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<PAGE>
ASSET PURCHASE AGREEMENT
------------------------
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is entered into as of
July 3, 1997, by and among ACCESS MEDICAL SUPPLY, INC. D/B/A ASSOCIATED PHYSICAL
THERAPY, a Texas corporation ("APT"), ALEXANDER I. GLOGAU, M.D. and NEAL C.
SMALL, M.D. and all residents of the State of Texas (collectively the
"Shareholders") on the one hand and SPECIALTY CARE NETWORK, INC., a Delaware
corporation ("SCN") on the other hand. SCN, APT and the Shareholders are
referred to collectively herein as the "Parties."
W I T N E S S E T H:
WHEREAS, APT is a Texas corporation which owns the assets which are
used by and/or result from the Shareholders' practice of medicine;
WHEREAS, the Shareholders are medical doctors practicing medicine in
the State of Texas;
WHEREAS, the Parties anticipate that the transaction contemplated by
this Agreement will further certain of their business objectives; and
WHEREAS, the Parties desire to set forth in writing the terms and
conditions under which said transaction will be consummated.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the Parties, it is agreed as
follows:
1. Definitions.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Agreement" has the meaning set forth in the preface above.
"Applicable Laws" has the meaning set forth in Section 3(r) below.
"Assumed Liabilities" has the meaning set forth in Section 2(b) below.
"Texas Business Corporation Act" means the Business Corporation Act of
the State of Texas, as amended.
"Closing Date" has the meaning set forth in Section 2(d) below.
"APT" has the meaning set forth in the preface above.
"Closing" has the meaning set forth in Section 2(d) below.
"Code" means the Internal Revenue Code of 1986, as amended.
"Delaware General Corporation Law" means the General Corporation Law of
the State of Delaware, as amended.
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<PAGE>
"Disclosure Schedule" has the meaning set forth in Section 3 below.
"Employee Benefit Plans" has the meaning set forth in Section 3(p)(i)
below.
"Environmental Laws" means all federal, state, and local laws, rules,
regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and
charges thereunder and other governmental requirements relating to pollution,
control of chemicals, storage and handling of petroleum products, management of
waste (including biohazardous or biomedical waste), discharges of materials into
the environment, health, safety, natural resources, and the environment,
including laws relating to emissions, discharges, releases, or threatened
releases of pollutants, contaminants, or chemical, industrial, hazardous, or
toxic materials or wastes into ambient air, surface water, ground water, or
lands or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling of pollutants,
contaminants, or chemical, industrial, hazardous, or toxic materials or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Excluded Assets" means (a) the Articles of Incorporation,
qualifications to conduct business as a foreign corporation, arrangements with
registered agents relating to foreign qualifications, taxpayer and other
identification numbers, seals, minute books, transfer books, and other documents
relating to the organization, maintenance, and existence of APT as a
corporation, (b) employment or noncompete agreements between APT and those
licensed medical doctors under contract with APT to provide medical services to
APT patients, (c) all patient records and patient lists, (d) all insurance
policies of APT and all claims arising thereunder and all prepaid expenses on
malpractice insurance premiums, (e) the inventories, cash, and accounts
receivable disposed of, cancelled, expanded or collected, as the case may be, by
APT after the date hereof and prior to the Closing in the Ordinary Course of
Business and consistent with past practice, (f) personal property of individual
Shareholders which is not included on the financial statements of APT, (g) APT's
cash on hand as of the Closing Date, (h) APT's third party provider agreements
and all of APT's provider numbers, (i) all drugs owned by APT, and (j) any
rights of APT under this Agreement or any related document or under any other
agreement between APT on the one hand and SCN on the other hand entered into on
or after the date of this Agreement.
"GAAP" means United States generally accepted accounting principles as
in effect from time to time.
"Hazardous Materials" has the meaning set forth in Section 3(t) below.
"IRS" means the Internal Revenue Service.
"Knowledge" means actual Knowledge after reasonable investigation.
"Medical Waste" includes, but is not limited to, pathological waste,
blood, sharps, wastes from surgery or autopsy, dialysis waste, including
contaminated disposable equipment and supplies, cultures and stock of infectious
agents and associated biological agents, contaminated animals, isolation wastes,
contaminated equipment, laboratory waste, various other biological waste and
discarded materials contaminated with or exposed to blood, excretion or
secretion from human beings or animals, and any substance, pollutant, material
or contaminant listed or regulated under the Medical Waste Tracking Act of 1988,
42 U.S.C. ss.ss. 6992, et seq.
"Medical Waste Law" means the Medical Waste Tracking Act of 1988, as
amended, the U.S. Public Vessel Medical Waste Anti-Dumping Act of 1988, 33
U.S.C.A. ss.ss. 2501, et seq., the Marine Protection, Research and Sanctuaries
Act of 1972, 33 U.S.C.A. ss.ss. 1401, et seq., the Occupational Safety and
Health Act, 29 U.S.C.A. ss.ss. 651, et seq., the United States Department of
Health and Human Services, National Institute for Occupational Self-Safety and
Health Infectious Waste Disposal Guidelines, Publication No. 88-119, all
regulations and orders issued pursuant
- 2 -
<PAGE>
to any of the foregoing, and any other federal, state, regional, county,
municipal or other local laws, regulations and ordinances insofar as they
purport to regulate Medical Waste or impose requirements relating to Medical
Waste.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice.
"Parties" has the meaning set forth in the preface above.
"Person" means an individual, a partnership, a limited liability
company, a corporation, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization, or a governmental entity (or any
department, agency, or political subdivision thereof).
"PBGC" has the meaning set forth in Section 3(p)(ii) below.
"Shareholders" has the meaning set forth in the preface above.
"Purchase Price" has the meaning set forth in Section 2(a) below.
"Purchased Assets" means all of APT's right, title, and interest in and
to the following assets of APT owned as of the Closing Date:
(a) any and all leaseholds and subleaseholds in real property,
improvements, fixtures, and fittings thereon, and easements, rights-of-way, and
other appurtenances and hereditaments thereto (such as appurtenant rights in and
to public streets), including the assets described on Schedule 1(a) attached
hereto (the "Real Property"),
(b) any and all furniture, fixtures, equipment and other capital assets
of APT, including items described on Schedule 1(b) attached hereto,
(c) any and all inventory of supplies, janitorial and office supplies,
and other disposables and consumables on hand at the Closing Date (excluding
drugs),
(d) any and all leases or subleases of equipment or other personal
property, and rights thereunder as described on Schedule 1(d) attached hereto,
(e) any and all Intellectual Property, goodwill associated therewith,
licenses and sublicenses granted and obtained with respect thereto, and rights
thereunder, remedies against infringements thereof, and rights to protection of
interests therein under the laws of all jurisdictions,
(f) any and all agreements, contracts, indentures, mortgages,
instruments, Security Interests, guaranties, other similar arrangements, and
rights thereunder,
(g) any and all claims, deposits, prepayments, refunds, causes of
action, choses in action, rights of recovery, rights of set off, and rights of
recoupment (except any such item relating to the payment of Taxes),
(h) any and all franchises, approvals, permits, licenses, orders,
registrations, certificates, variances, and similar rights obtained from
governments and governmental agencies,
(i) any and all books, records, ledgers, files, documents,
correspondence, lists, plats, architectural plans, drawings, and specifications,
creative materials, advertising and promotional materials, studies, reports, and
other printed or written materials (excluding patient medical records),
- 3 -
<PAGE>
(j) any and all accounts receivable (excluding governmental
receivables) of APT as the same exist on the Closing Date and all rights to
receive payments on governmental receivables after payments on such governmental
receivables are received by APT, which accounts receivable shall include all
uncollected patient accounts of APT on the Closing Date.
The term "Purchased Assets" shall not include any specific item included within
the definition of Excluded Assets below.
"Real Property" has the meaning set forth within the definition of
Acquired Assets in this Section 1.
"Requisite APT Approval" means the affirmative vote of the holders of
the requisite percentage of the shares of APT which is required by the Texas
Business Corporation Act to approve the transactions contemplated by this
Agreement.
"Requisite SCN Board of Directors Approval" means the affirmative vote
of the holders of a majority of the SCN Board of Directors in favor of this
Agreement.
"SCN" has the meaning set forth in the preface above.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance,
charge or other security interest other than (a) mechanic's, materialmen's or
similar lien, (b) liens for taxes not yet due and payable or for taxes that the
taxpayer is contesting in good faith through appropriate proceedings, (c)
purchase money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.
"Service Agreement" means that certain Service Agreement dated as of
the Closing Date by and among SCN, APT, and the Shareholders, in substantially
the form attached hereto as Exhibit 7(a)(iii).
"Subsidiary" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) owns a majority of the common stock or has the
power to vote or direct the voting of sufficient securities to elect a majority
of the directors.
2. Basic Transaction.
(a) Purchase and Sale of Assets. At the Closing, on and subject to the
terms and conditions of this Agreement, APT agrees to transfer, sell, convey and
deliver to SCN, and SCN agrees to purchase, all of the Purchased Assets for a
price equal to $1,449,770 (the "Purchase Price") to be paid or satisfied as set
forth in Section 2(c).
(b) Assumption of Liabilities. Except as otherwise provided herein, SCN
shall assume at the Closing Date, and shall perform or discharge on or after the
Closing Date, only (i) the contracts, leases, commitments, obligations and
liabilities of APT which are listed on Schedule 2(b) attached hereto, (ii) all
of APT's trade payables (rent, utilities, telephone, etc.) incurred by APT
during the thirty day period prior to the Closing Date and in the Ordinary
Course of Business, and (iii) APT's state franchise tax liability not to exceed,
in the aggregate with the state franchise tax liabilities of Neal C. Small,
M.D., P.A., Associated Arthroscopy Institute, Inc., Allied Health Services,
P.A., Alexander I. Glogau, M.D., P.A. and Neal C. Small, M.D. and Associates,
P.A. being assumed by SCN pursuant to the agreements referred to in
Section 6(a)(vii) below, $160,000 (collectively, the "Assumed Liabilities"),
and shall assume no other liabilities
- 4 -
<PAGE>
of APT. Notwithstanding any contrary provision contained herein, SCN shall not
be deemed to have assumed, nor shall SCN assume: (i) any liability which may be
incurred by reason of any breach of or default under such contracts, leases,
commitments or obligations which occurred prior to the Closing Date; (ii) any
liability for any employee benefits payable to employees of APT, including, but
not limited to, liabilities arising under any Employee Benefit Plan of APT;
(iii) any liability based upon or arising out of a violation of any laws by APT,
including, without limiting the generality of the foregoing, any such liability
which may arise in connection with agreements, contracts, commitments or
provision of services by APT or any Physician Owner; (iv) any liability based
upon or arising out of any tortious or wrongful actions
- 5 -
<PAGE>
of APT or any Physician Owner, or (v) any liability for the payment of any
taxes imposed by law on APT arising from any activities of APT prior to the
Closing Date or by reason of the transactions contemplated by this Agreement.
(c) Purchase Price. SCN shall pay or satisfy the Purchase Price at the
Closing by delivering to APT $1,449,770 in cash, payable by wire transfer or
delivery of immediately available funds, representing the Purchase Price.
(d) The Closing. The closing of the transaction (the "Closing") shall
take place at the offices of APT, 4031 West Plano Parkway, Plano, Texas 75093
commencing at 9:00 a.m. local time on the second business day following the
satisfaction or waiver of all conditions to the obligations of the Parties to
consummate the transactions contemplated hereby or such other date as the
Parties may mutually determine (the "Closing Date"); provided, however, that the
Closing Date shall be no later than July 31, 1997. Time is of the essence for
this Agreement.
(e) Deliveries at Closing. At the Closing, (i) SCN will deliver to APT
the various certificates, instruments, and documents referred to in Section 7(b)
below; (ii) APT will deliver to SCN the various certificates, instruments, and
documents referred to in Section 7(a) below.
(f) Proration. The following prorations among the Parties shall be made
as of the Closing Date. Except as provided for in Section 2(b), APT shall remain
liable to the extent such items relate to any time period up to the Closing Date
and SCN shall be liable (solely pursuant to the terms of the Service Agreement)
to the extent such items relate to periods on and after the Closing Date:
(i) Any ad valorem taxes, including, without limitation,
personal property taxes and assessments, and other taxes, if any, on or
with respect to the Purchased Assets,
(ii) Rents, additional rents, taxes and other items payable by
APT under any lease, license, permit, contract or any other agreement
or arrangement to be assigned to or assumed by SCN, and
(iii) The amount of rents, taxes, and charges for sewer,
water, fuel, telephone, electricity, and other utilities; provided,
that if practicable, a meter reading shall be take on the Closing Date
and the respective obligations of the Parties determined in accordance
with such readings.
To the extent possible, the net amount of all such prorations will be
settled in cash at the Closing. If the actual expense of any of the above items
for the billing period in which the Closing Date falls is not known at the
Closing, the proration shall be made based on the expense incurred in the
previous billing cycle, for expenses billed less often than quarterly, and on
the average expense incurred in the preceding three (3) billing periods, for
expense bill quarterly or more often.
(g) Taxes and Expenses. APT shall be responsible for any business,
occupation, withholding or similar tax or taxes of any kind related to APT's
business for any period prior to the Closing Date. All applicable sales, use and
tangible taxes, documentary stamp taxes, filing and recording costs and other
transfer taxes, costs and fees relating to the transfer of title to the
Purchased Assets, and the consummation of the transactions described herein,
shall be paid by APT.
(h) Allocation. The Parties agree to allocate the Purchase Price among
the Purchased Assets (and all other capitalizable costs) among the Purchased
Assets for all purposes (including financial accounting and tax purposes) in
accordance with the Purchase Price Allocation Agreement attached hereto as
Exhibit 2(h).
(i) Employees. As of the Closing Date, APT shall terminate all the
employees of APT other than Physician Employees and Technical Employees (both as
defined in the Service Agreement). SCN or an Affiliate of SCN may offer to hire
such terminated employees as it desires. APT shall retain responsibility under
any and all employment agreements
- 6 -
<PAGE>
with respect to terminated employees. APT hereby covenants and agrees that it
will take whatever steps are necessary to pay or fund completely or reserve
completely for any accrued benefits, where applicable, or vested accrued
benefits for which APT or any entity might have any liability whatsoever arising
from any salary, wage, benefit, bonus, sick leave, insurance, employment tax or
similar liability of APT to any employee or other person or entity (including,
without limitation, any Employee Benefit Plan of APT and any liability under
employment contracts with APT) allocable to services performed prior to the
Closing Date. APT acknowledges that the purpose and intent of this covenant is
to assure that SCN shall have no liability whatsoever at any time in the future
with respect to any of APT's employees or similar persons or entities,
including, without limitation, any Employee Benefit Plan of APT.
3. Representations and Warranties of APT and the Shareholders. APT and
the Shareholders, jointly and severally, represent and warrant to SCN that the
statements contained in this Section 3 are correct and complete as of the date
of this Agreement and will be correct and complete as of the Closing Date (as
though made then and as though the Closing Date were substituted for the date of
this Agreement throughout this Section 3), except as set forth in the disclosure
schedule (the "Disclosure Schedule"). The Disclosure Schedule will be arranged
in paragraphs corresponding to the numbered and lettered paragraphs contained in
this Section 3 and Section 4.
(a) Organization, Qualification, and Power. APT is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Texas. APT is duly authorized to conduct business and is in good standing under
the laws of each jurisdiction in which the character or location of the
properties owned or the business conducted by APT makes such qualification
necessary. APT has the full power and authority to carry on the business in
which it is engaged and to own and use the properties owned, leased and used by
it.
(b) Ownership Interest of APT. APT is owned in the manner set forth in
Section 3(b) of the Disclosure Schedule. Except as set forth in Section 3(b) of
the Disclosure Schedule, there are no other shares of any form authorized or
outstanding.
(c) Authorization of Transaction. APT has the full power and authority
to execute and deliver this Agreement and to perform its obligations hereunder.
This Agreement constitutes the valid and legally binding obligation of APT and
the Shareholders, enforceable in accordance with its terms and conditions.
(d) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge or other restriction of any government,
governmental agency, professional regulatory organization or court to which APT
is subject or any provision of the Articles of Incorporation or bylaws of APT or
(ii) conflict with, result in a breach of, constitute a default under, result in
the acceleration of, create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice under any agreement, contract, lease,
license, instrument or other arrangement to which APT is a party or by which it
is bound or to which any of its assets is subject (or result in the imposition
of any Security Interest upon any of its assets). APT is not required to give
any notice to, make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order for the Parties to
consummate the transactions contemplated by this Agreement.
(e) Subsidiaries and Investments. APT does not own, directly or
indirectly, any capital stock or other equity ownership or proprietary interest
in any other corporation, partnership, association, limited liability company,
trust, joint venture or other entity.
(f) Financial Statements. APT has furnished SCN with unaudited balance
sheets dated December 31, 1995 and 1996 and May 31, 1997, and unaudited income
statements for the twelve (12) month periods ending December 31, 1996, 1995 and
1994 and the five (5) months ended May 31, 1997. Such financial statements,
including the notes thereto, except as indicated therein, were prepared on a
basis consistent with past accounting practices of APT and fairly present the
results of operations for the periods noted therein. The balance sheets of APT
delivered by APT to SCN
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fairly present the financial condition of APT at the date thereof, and except as
indicated therein, reflect all claims against and all debts and liabilities of
APT fixed or contingent, as of the date thereof.
(g) Undisclosed Liabilities. APT has no uninsured liability (whether
known or unknown, asserted or unasserted, absolute or contingent, accrued or
unaccrued, liquidated or unliquidated, and whether due or to become due),
including any liability for taxes, except for (i) liabilities set forth on the
face of the balance sheet dated as of December 31, 1996 and (ii) liabilities
which have arisen after December 31, 1996 in the Ordinary Course of Business
(none of which results from, arises out of, relates to, is in the nature of, or
was caused by any breach of contract, breach of warranty, tort, infringement, or
violation of law).
(h) Brokers' Fees. APT does not have any liability or obligation to pay
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement.
(i) Material Contracts. Section 3(i) of the Disclosure Schedule lists
the following contracts and other material agreements to which APT is a party:
(i) any agreement (or group of related agreements) for the
lease of real or personal property to or from any Person;
(ii) any agreement (or group of related agreements) for the
purchase or sale of supplies, products, or other personal property or
for the furnishing or receipt of services;
(iii) any agreement concerning a partnership, limited
liability company or joint venture;
(iv) any agreement (or group of related agreements) under
which APT has created, incurred, assumed, or guaranteed any
indebtedness for borrowed money, or any capitalized lease obligation
pursuant to which it has imposed a Security Interest in respect of any
of its assets, tangible or intangible;
(v) any agreement concerning confidentiality or
noncompetition;
(vi) any profit sharing, option, deferred compensation,
severance, or other plan or arrangement for the benefit of APT's
current or former owners, directors, partners, managers, officers,
and/or employees;
(vii) any agreement for the employment of any individual on a
full-time, part-time, consulting, or other basis providing annual
compensation in excess of $25,000 or providing severance benefits;
(viii) any agreement pursuant to which APT has advanced or
loaned any amount to any of its directors, officers, and employees;
(ix) any agreement pursuant to which the consequences of a
default or termination could have a material adverse effect on the
business, financial condition, operations, results of operations, or
future prospects of APT;
(x) any third-party provider agreements; or
(xi) any other agreement (or group of related agreements)
outside the ordinary course of APT's business or operations the
performance of which involves consideration in excess of $15,000.
APT has delivered or given SCN access to a correct and complete copy of each
written agreement listed in Section 3(i) of the Disclosure Schedule (as amended
through the Closing Date) and a written summary setting forth the terms and
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conditions of each oral agreement referred to in Section 3(i) of the Disclosure
Schedule. With respect to each such agreement: (A) the agreement is legal,
valid, binding, enforceable, and in full force and effect; (B) except as set
forth in Section 3(i) of the Disclosure Schedule, no notice of this Agreement or
consent of any third party is required in order for APT to execute and deliver
this Agreement or to consummate the transactions contemplated hereby, and, after
assignment to SCN at Closing, the agreement will continue to be legal, valid,
binding, enforceable, and in full force and effect on identical terms; (C) no
party is in breach or default, and no event has occurred which with notice or
lapse of time would constitute a breach or default, or permit termination,
modification, or acceleration, under the agreement; and (D) no party has
repudiated any provision of the agreement. SCN shall have no obligation to
assume APT's obligations under any agreement listed in Section 3(i) of the
Disclosure Schedule unless such obligation is also listed on Schedule 2(b).
(j) Insurance; Malpractice. Section 3(j) of the Disclosure Schedule
contains a list and brief description of all policies or binders of fire,
liability, product liability, workers compensation, health and other forms of
insurance policies or binders currently in force insuring against risks which
will remain in full force and effect at least through the Closing Date. Section
3(j) of the Disclosure Schedule contains a description of all current
malpractice liability insurance policies of the Shareholders, APT and APT's
professional employees and all predecessor policies in effect since February 1,
1990. Neither APT, the Shareholders, nor APT's professional employees have, in
the last seven (7) years, filed a written application for any insurance coverage
relating to APT's business or property which has been denied by an insurance
agency or carrier. APT, APT's professional employees and the Shareholders have
been continuously insured for professional malpractice claims during the same
period. Section 3(j) of the Disclosure Schedule also sets forth a list of all
claims for any insured loss in excess of Five Thousand Dollars ($5,000.00) per
occurrence filed by or against APT, APT's professional employees or the
Shareholders during the three (3) year period immediately preceding the date
hereof, including workers compensation, general liability, environmental
liability and professional malpractice liability claims. None of APT, APT's
professional employees or the Shareholders is in material default with respect
to any provision contained in any such policy and none of them has failed to
give any notice or present any claim under any such policy in due and timely
fashion.
(k) No Changes Prior to Closing Date. During the period from December
31, 1996 through the date hereof, APT has not (i) incurred any liability or
obligation of any nature (whether known or unknown, asserted or unasserted,
absolute or contingent, accrued or unaccrued, liquidated or unliquidated and
whether due or to become due), except in the Ordinary Course of Business, (ii)
written off as uncollectible any notes or accounts receivable, except write-offs
in the Ordinary Course of Business charged to applicable reserves, none of which
individually or in the aggregate is material to APT, (iii) conducted its
business in such a manner so as to materially increase its accounts payable or
so as to materially decrease its accounts receivable, (iv) granted any increase
in the rate of wages, salaries, bonuses, or other remunerations of any employee,
except in the Ordinary Course of Business, (v) canceled or waived any claims or
rights of substantial value, (vi) made any change in any method of accounting,
(vii) otherwise conducted its business or entered into any transaction, except
in the usual and ordinary manner and in the Ordinary Course of Business, (viii)
agreed, whether or not in writing, to do any of the foregoing, or (ix) disposed
of its assets other than in the Ordinary Course of Business.
(l) Title; Condition. APT has, or will have at the Closing Date, good
and marketable title to all of the Purchased Assets subject to no mortgage,
pledge, lien, lease, conditional sales agreement, option, right of first refusal
or any other encumbrance or charge, including taxes. APT agrees to remove all
security interests reflected on any search of public records, if any, prior to
the Closing Date and to remove any other security interest filed with respect to
the Purchased Assets between the date of such search of public records and the
Closing Date.
(m) Litigation. There is no suit, action, proceeding at law or in
equity, arbitration, administrative proceeding or other proceeding or
investigation by any governmental entity pending, or threatened against, or
affecting APT or any of the Purchased Assets, or any physician or other health
care professional engaged or employed by APT, and there is no basis for any of
the foregoing. None of the actions, suits, proceedings, hearings, and
investigations set forth in
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Section 3(m) of the Disclosure Schedule could result in any material adverse
change in the operations, results of operations, or future prospects of the
business assets to be operated by SCN after the Closing.
(n) Permits and Licenses. APT and all physicians and other health care
professionals engaged or employed by APT have all permits and licenses required
by all applicable laws; have made all regulatory filings necessary for the
conduct of APT's business; and are not in violation of any of said permitting or
licensing requirements.
(o) Tax Matters. All federal, state and other tax returns of APT
required by law to be filed have been timely filed, and APT has paid or
adequately provided for all taxes (including taxes on properties, income,
franchises, licenses, sales and payrolls) which have become due pursuant to such
returns or pursuant to any assessment, except for any taxes and assessments, the
amount, applicability or validity of which is currently being contested in good
faith by appropriate proceedings and with respect to which APT has set aside on
its books adequate reserves. There are no tax liens on any of APT's assets
except those with respect to taxes not yet due and payable. There are no pending
tax examinations of APT's tax returns nor has APT received a revenue agent's
report asserting a tax deficiency in the last twelve (12) months. There are not
and will not be at the Closing Date, any claims pending or asserted against APT
for unpaid taxes by any federal, state or other governmental body. APT has
withheld from each payment made to employees of APT the amount of all taxes
(including, but not limited to, federal, state and local income taxes and
Federal Insurance Contribution Act taxes) required to be withheld therefrom and
all amounts customarily withheld therefrom, and has set aside all other employee
contributions or payments customarily set aside with respect to such wages and
has paid or will pay the same to, or has deposited or will deposit such payment
with, the proper tax receiving officers or other appropriate authorities.
(p) Employee Benefit Plans.
(i) List of Plans. Section 3(p) of the Disclosure Schedule
contains an accurate and complete list of all employee benefit plans
("Employee Benefit Plans") within the meaning of Section 3(3) of ERISA,
whether or not any Employee Benefit Plans are otherwise exempt from the
provisions of ERISA, established, maintained or contributed to by APT
(including all employers (whether or not incorporated) which by reason
of common control are treated together with APT and/or the Shareholders
as a single employer within the meaning of Section 414 of the Code)
since September 2, 1974.
(ii) Status of Plans. APT has never maintained and does not
now maintain or contribute to any Employee Benefit Plan subject to
ERISA, which is not in substantial compliance with ERISA or which has
incurred any accumulated funding deficiency within the meaning of
Section 412 or 418B of the Code, or which has applied for or obtained a
waiver from the Internal Revenue Service of any minimum funding
requirement under Section 412 of the Code or which is subject to Title
IV of ERISA. APT has not incurred any liability to the Pension Benefit
Guaranty Corporation ("PBGC") in connection with any Employee Benefit
Plan covering any employees of APT or ceased operations at any facility
or withdrawn from any such Plan in a manner which could subject it to
liability under Section 4062(f), 4063 or 4064 of ERISA, and knows of no
facts or circumstances which might give rise to any liability of APT to
the PBGC under Title IV of ERISA which could reasonably be anticipated
to result in any claims being made against APT by the PBGC. APT has not
incurred any withdrawal liability (including any contingent or
secondary withdrawal liability) within the meaning of Sections 4201 and
4202 of ERISA, to any Employee Benefit Plan which is a Multiemployer
Plan (as defined in Section 4001 of ERISA), and no event has occurred,
and there exists no condition or set of circumstances, which represent
a material risk of the occurrence of any withdrawal from or the
partition, termination, reorganization or insolvency of any
Multiemployer Plan which would result in any liability of APT.
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(iii) Contributions. Full payment has been made of all amounts
which APT is required, under applicable law or under any Employee
Benefit Plan or any agreement relating to any Employee Benefit Plan to
which APT is a party, to have paid as contributions thereto as of the
last day of the most recent plan year of such Employee Benefit Plan
ended prior to the date hereof. APT has made adequate provision for
reserves to meet contributions that have not been made because they are
not yet due under the terms of any Employee Benefit Plan or related
agreements. Benefits under all Employee Benefit Plans are as
represented and have not been increased subsequent to the date as of
which documents have been provided.
(iv) Tax Qualification. Each Employee Benefit Plan intended to
be qualified under Section 401(a) of the Code has been determined to be
so qualified by the Internal Revenue Service and, nothing has occurred
since the date of the last such determination which resulted or is
likely to result in the revocation of such determination.
(v) Transactions. APT has not engaged in any transaction with
respect to the Employee Benefit Plans which would subject it to a
material tax, penalty or liability for prohibited transactions under
ERISA or the Code nor have any of its directors, officers or employees
to the extent they or any of them are fiduciaries with respect to such
plans, breached any of their responsibilities or obligations imposed
upon fiduciaries under Title I of ERISA which would result in any
material claim being made under or by or on behalf of any such plans by
any party with standing to make such claim.
(vi) Other Plans. APT presently does not maintain any Employee
Benefit Plans or any other foreign pension, welfare or retirement
benefit plans other than those listed on Section 3(p) of the Disclosure
Schedule.
(vii) Documents. APT has delivered or caused to be delivered
to SCN true and complete copies of (i) all Employee Benefit Plans as in
effect, together with all amendments thereto which will become
effective at a later date, as well as the latest IRS determination
letter obtained with respect to any such Employee Benefit Plan
qualified under Section 401 or 501 of the Code, and (ii) the most
recently filed Form 5500 for each Employee Benefit Plan required to
file such form.
(q) Third-Party Relations. APT has not received any notice that any
material patient, supplier, employee or associated physician intends to cease
doing business with APT.
(r) Compliance with Applicable Laws. APT has operated in compliance
with all federal, state, county and municipal laws, constitutions, ordinances,
statutes, rules, regulations and orders applicable thereto ("Applicable Laws").
No item disclosed in Section 3(r) of the Disclosure Schedule could have a
material effect on SCN. Neither APT nor any physician associated with or
employed by APT has received payment or any remuneration whatsoever to induce or
encourage the referral of patients or the purchase of goods and/or services as
prohibited under 42 U.S.C. ss. 1320a-7b(b), or otherwise perpetrated any
Medicare or Medicaid fraud or abuse nor has any fraud or abuse been alleged
within the last five (5) years by any government agency.
(s) Employee Compensation. APT has paid or discharged or will pay or
discharge or assume all liabilities for compensation and benefits to which all
employees, including physician employees, are entitled through the Closing Date,
including but not limited to all salaries, wages, bonuses, incentive
compensation, payroll taxes, hospitalization and medical expenses, deferred
compensation, and vacation and sick pay, as well as any severance pay becoming
due as a result of the termination of certain of APT's employees.
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(t) Environmental Matters.
(i) APT is in full compliance with all applicable
Environmental Laws.
(ii) APT has not authorized or conducted the disposal or
release, or other handling of any Medical Waste, hazardous substance,
hazardous waste, hazardous material, hazardous constituent, toxic
substance, pollutant, contaminant, asbestos, radon, polychlorinated
biphenyls ("PCBs"), petroleum product or waste (including crude oil or
any fraction thereof), natural gas, liquefied gas, synthetic gas,
biohazardous or biomedical material, or other material defined,
regulated controlled or potentially subject to any remediation
requirement under any Environmental Law (collectively "Hazardous
Materials"), on, in, under or affecting or any property owned or leased
by APT.
(iii) APT has, and is in compliance with, all licenses,
permits, registrations, and government authorizations necessary to
operate under all applicable Environmental Laws. Section 3(t) of the
Disclosure Schedule lists all such licenses, permits, registrations and
government authorizations required by any Environmental Law.
(iv) APT has not received any written or oral notice from any
governmental agency or entity or any other Person and there is no
pending or threatened claim, litigation or any administrative agency
proceeding that: (a) alleges a violation of any Environmental Law(s) by
APT or, with respect to the Purchased Assets or any property owned or
leased by APT, (b) alleges that APT is a liable party or potentially
responsible party under the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. ss. 9601, et seq., or any
analogous state law, (c) has resulted or could result in the attachment
of an environmental lien on any of the Purchased Assets or property
owned or leased by APT or (d) alleges that APT is liable for any
contamination of the environment, contamination of any property owned
or leased by APT, damage to natural resources, property damage, or
personal injury based on its activities or the activities of any
predecessor or third parties involving Hazardous Materials, whether
arising under the Environmental Laws, common law principles, or other
legal standards.
(v) With respect to the generation, transportation, treatment,
storage and disposal or other handling of Medical Waste, APT has
complied with all Medical Waste Laws.
(u) Healthcare Compliance. APT is participating in or otherwise
authorized to receive reimbursement from Medicare and Medicaid and is a party to
other third-party payor agreements, if any, discussed in Section 3(i) of the
Disclosure Schedule. All necessary certifications and contracts required for
participation in such programs are in full force and effect and have not been
amended or otherwise modified, rescinded, revoked or assigned, and no condition
exists or event has occurred which in itself or with the giving of notice or the
lapse of time or both would result in the suspension, revocation, impairment,
forfeiture or non-renewal of any such third-party payor program. APT is in
compliance in all material respects with the requirements of all such
third-party payors. APT, the Shareholders, and its physician employees do not
have any financial relationship (whether investment interest, compensation
interest, or otherwise) with any entity to which any of the foregoing refer
patients, except for such financial relationships that qualify for exceptions to
state and federal laws restricting physician referrals to entities in which they
have a financial interest.
(v) Fraud and Abuse. APT, the Shareholders, and persons and entities
providing professional services for APT have not engaged in any activities which
are prohibited under 42 U.S.C. ss. 1320a-7b, or the regulations promulgated
thereunder pursuant to such statutes, or related state or local statutes or
regulations, or which are prohibited by rules of professional conduct, including
the following: (a) knowingly and willfully making or causing to be made a false
statement or representation of a material fact in any application for any
benefit or payment; (b) knowingly and willfully making or causing to be made any
false statement or representation of a material fact for use in determining
rights to
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any benefit or payment; (c) failing to disclose knowledge by a claimant of the
occurrence of any event affecting the initial or continued right to any benefit
or payment on its own behalf or on behalf of another, with intent to
fraudulently secure such benefit or payment; or (d) knowingly and willfully
soliciting or receiving any remuneration (including any kickback, bribe, or
rebate), directly or indirectly, overtly or covertly, in cash or in kind or
offering to pay or receive such remuneration (1) in return for referring an
individual to a person for the furnishing or arranging for the furnishing or any
item or service for which payment may be made in whole or in part by Medicare or
Medicaid or (2) in return for purchasing, leasing, or ordering or arranging for
or recommending purchasing, leasing or ordering any good, facility, service or
item for which payment may be made in whole or in part by Medicare or Medicaid.
(w) Practice Compliance. APT is lawfully operated in accordance with
the requirements of all Applicable Laws and has all necessary authorizations for
the conduct of its business, all of which are in full force and effect. There
are no outstanding notices of deficiencies relating to APT issued by any
governmental authority or third-party payor requiring conformity or compliance
with any applicable law or condition for participation with such governmental
authority or third-party payor, and after reasonable and independent inquiry and
due diligence and investigation, APT has neither received notice nor has any
Knowledge or reason to believe that such necessary authorizations may be revoked
or not renewed in the Ordinary Course of Business.
(x) Rates and Reimbursement Policies. The jurisdiction in which APT is
located does not currently impose any restrictions or limitations on rates which
may be charged to private pay patients receiving services provided by APT. APT
does not have any rate appeal currently pending before any governmental
authority or any administrator of any third-party payor program. No Applicable
Law which affects rates or reimbursement procedures has been enacted,
promulgated or issued within the eighteen (18) months preceding the date of this
Agreement and no such legal requirement is proposed or currently pending in the
jurisdiction in which APT is located, which could have a material adverse effect
on APT or may result in the imposition of additional Medicaid, Medicare,
charity, free care, welfare, or other discounted or government assisted patients
at APT or require APT to obtain any necessary authorization which APT does not
currently possess.
(y) Accounts Receivable. All accounts receivable, unbilled invoices and
other debts due or recorded in the respective records and books of account of
APT, as being due to APT, (i) are valid, existing and are collectible within one
hundred eighty (180) days following the date of this Agreement without resort to
legal proceedings or use of collection agencies, (ii) have arisen in the
Ordinary Course of Business, and (iii) none of such accounts receivable or other
debts is or will at the Closing Date be subject to any counterclaim or set-off.
There has been no material adverse change since May 31, 1997 in the amount of
accounts receivable or other debts due APT, the allowances with respect thereto,
or accounts payable of APT from that reflected in the most recent balance sheet
previously delivered by APT to SCN.
(z) Guaranties. APT is not a guarantor and otherwise is not liable for
any liability or obligation (including indebtedness) of any other Person.
(aa) Powers of Attorney. There are no outstanding powers of attorney
executed by APT, except as may be contained in financing documents or security
agreements listed in Section 3(i) of the Disclosure Schedule.
(bb) Tangible Assets. APT owns or leases all land, buildings,
machinery, equipment, and other tangible assets necessary for the conduct of its
business as presently conducted. Each tangible asset is free from defects has
been maintained in accordance with normal industry practice and is in good
operating condition and repair (subject to normal wear and tear).
(cc) Full Disclosure. No representation or warranty made by APT in this
Agreement contains or will contain any untrue statement of a material fact or
omits or will omit to state a material fact necessary to make the statements
contained herein or therein not materially misleading.
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4. Representations and Warranties of SCN. SCN represents and warrants
to APT that the statements contained in this Section 4 are correct and complete
as of the date of this Agreement and will be correct and complete as of the
Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Section 4), except as
set forth in the Disclosure Schedule. The Disclosure Schedule will be arranged
in paragraphs corresponding to the numbered and lettered paragraphs contained in
this Section 4.
(a) Organization. SCN is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Delaware.
(b) Authorization of Transaction. SCN has full power and authority
(including full corporate power and authority) to execute and deliver this
Agreement, to issue the SCN Shares to be issued in connection with this
Agreement and otherwise to perform its obligations hereunder; provided, however,
that SCN cannot consummate the transaction unless and until it receives the
Requisite SCN Board of Directors Approval. Except as set forth in the preceding
sentence, this Agreement constitutes the valid and legally binding obligation of
SCN, enforceable in accordance with its terms and conditions.
(c) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge or other restriction of any government,
governmental agency, professional regulatory organization or court to which SCN
is subject or may become subject as a result of the transaction contemplated by
this Agreement, or any provision of the charter or bylaws of SCN or (ii)
conflict with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, modify,
or cancel, or require any notice under any agreement, contract, lease, license,
instrument or other arrangement to which SCN is a party or by which it is bound
or to which any of its assets is subject. Other than state and federal filings
required by the Securities Act and similar state statutes, SCN does not need to
give any notice to, make any filing with, or obtain any authorization, consent,
or approval of any government or governmental agency in order for the Parties to
consummate the transactions contemplated by this Agreement.
(d) Brokers' Fees. SCN does not have any liability or obligation to pay
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which SCN could become liable or
obligated.
(e) Securities Filings. All reports and statements filed with respect
to SCN pursuant to the Securities Act or the Securities Exchange Act conform to
the requirements of the Securities Act and the Securities Exchange Act and the
rules and regulations promulgated thereunder and did not include at the time of
filing such document any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading.
5. Covenants. The Parties agree as follows with respect to the period
from and after the execution of this Agreement.
(a) General. Each of the Parties will use its or his best efforts to
take all action and to do all things necessary in order to consummate and make
effective the transactions contemplated by this Agreement (including
satisfaction of the closing conditions set forth in Section 6 below) to be
satisfied by him or it. This Section 5(a) shall not be construed to obligate any
of the Parties to waive any condition precedent to his or its obligations to
perform hereunder.
(b) Notices and Consents. APT will give any notices to third parties,
and will use its best efforts to obtain any third party consents, necessary or
required to consummate the transaction or that SCN reasonably may request in
connection with the matters referred to in Section 3(i) above.
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(c) Regulatory Matters and Approvals. Each of the Parties will give any
notices to, make any filings with, and use its reasonable best efforts to obtain
any authorizations, consents, and approvals of governments and governmental
agencies in connection with the transactions contemplated by this Agreement.
(d) Operation of Business. From the date of this Agreement through the
Closing Date, APT will not engage in any practice, take any action, or enter
into any transaction outside the Ordinary Course of Business. Without limiting
the generality of the foregoing:
(i) APT will not authorize or effect any change in its
Articles of Incorporation or bylaws;
(ii) APT will not grant any options, warrants, or other rights
to purchase or obtain any of its shares or issue, sell, or otherwise
dispose of any of its shares;
(iii) APT will not declare, set aside, or pay any dividend or
distribution with respect to its shares (whether in cash or in kind),
or redeem, repurchase, or otherwise acquire any of its shares in either
case outside the Ordinary Course of Business without the consent of
SCN, which consent shall not be unreasonably withheld;
(iv) APT will not issue any note, bond, or other debt security
or create, incur, assume, or guarantee any indebtedness for borrowed
money or capitalized lease obligation outside the Ordinary Course of
Business;
(v) APT will not impose any Security Interest upon any of its
assets outside the Ordinary Course of Business;
(vi) APT will not make any capital investment in, make any
loan to, or acquire the securities or assets of any other Person
outside the Ordinary Course of Business;
(vii) APT will not make any change in employment terms for any
of the Shareholders or its managers, officers, and employees outside
the Ordinary Course of Business; and
(viii) APT will not commit to do any of the foregoing.
(e) Further Acts and Assurances. APT and the Shareholders shall, at any
time and from time to time at and after the Closing, upon request of SCN, take
any and all steps necessary to place SCN in possession and operating control of
the Purchased Assets, and will do, execute, acknowledge and deliver, or will
cause to be done, executed, acknowledged and delivered, all such further acts,
deeds, assignments, transfers, conveyances, powers of attorney and assurances as
may be required for the better transferring and confirming to SCN or its
successors or assigns, or for reducing to possession, any or all of the
Purchased Assets.
(f) Full Access. Upon three (3) days prior notice, APT will permit
representatives of SCN to have full access to all premises, properties,
personnel, books, records (including tax records), contracts, and documents of
or pertaining to APT during normal business hours. SCN (i) will treat and hold
as such any confidential information it receives from APT in the course of the
reviews contemplated by this Section 5(f), (ii) will not use any of the
confidential information except in connection with this Agreement, and (iii) if
this Agreement is terminated for any reason whatsoever, agrees to return to APT
all tangible embodiments (and all copies) thereof which are in its possession.
(g) Notice of Developments. Each Party will give prompt written notice
to the other Parties of any material adverse development causing a breach of any
of its own representations and warranties in Section 3 or Section 4 above. No
disclosure by any Party pursuant to this Section 5(g), however, shall be deemed
to amend or supplement the Disclosure Schedule or to prevent or cure any
misrepresentation, breach of warranty, or breach of covenant.
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(h) Exclusivity. Until the earlier of (i) July 31, 1997 or (ii) the
Closing Date, APT will not solicit, initiate, or encourage the submission of any
proposal or offer from any Person relating to the acquisition of all or
substantially all of the capital stock or assets of APT (including any
acquisition structured as a merger, consolidation, or share exchange). APT shall
notify SCN immediately if any Person makes any proposal, offer, inquiry, or
contact with respect to any of the foregoing.
(i) Collection of Accounts Receivable. The Shareholders agree to
cooperate with SCN in the collection of accounts receivable owned by APT as of
the Closing Date acquired pursuant to this Agreement. SCN, at its option, shall
have the right to require the collection of said accounts receivable through a
lockbox or bank account sweep arrangement. In connection therewith, the
Shareholders agree to execute the necessary documents and follow the necessary
procedures as described in the Service Agreement to accommodate the collection
of the accounts receivable in such manner.
(j) Corporate Authorization. By execution of this Agreement, the
Shareholders agree to take any and all steps necessary and will do, execute,
acknowledge and deliver, or will cause to be done, executed, acknowledged and
delivered, all such acts, deeds and assurances required in order to consummate
the transactions contemplated by this Agreement, including voting as directors
of APT in favor of the transactions contemplated by this Agreement and voting as
an owner of APT in favor of the transactions contemplated by this Agreement at
any meeting (or in any action by written consent) required by the Texas Business
Corporation Act.
(k) Malpractice Insurance. On or before the Closing, all physicians and
employees of APT shall be covered by medical malpractice insurance and, if
required by SCN, medical malpractice tail insurance to cover prior occurrences
shall be procured by APT.
(l) Employee Benefit Plans. Prior to the Closing Date, all Employee
Benefit Plans shall be terminated in accordance with, and to the extent required
by, Applicable Law.
6. Conditions to Obligation to Close.
(a) Conditions to Obligation of SCN. The obligation of SCN to
consummate the transactions contemplated by this Agreement is subject to
satisfaction of the following conditions:
(i) APT shall have procured all of the third party consents
specified in Section 5(b) above;
(ii) the representations and warranties set forth in Section 3
above shall be true and correct in all material respects at and as of
the Closing Date;
(iii) APT shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(iv) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency
of any federal, state, local, or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction, judgment, order, decree,
ruling, or charge would (A) prevent consummation of any of the
transactions contemplated by this Agreement, (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation, or (C) affect adversely the right of SCN to own the
Purchased Assets;
(v) all actions to be taken by APT in connection with
consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby, have been taken or
delivered to SCN and are satisfactory in form and substance to SCN;
- 16 -
<PAGE>
(vi) SCN shall have completed and be satisfied with its due
diligence review;
(vii) On or before the Closing Date, the transactions
contemplated by (i) the Merger Agreement between SCN, Neal C. Small,
M.D., P.A., and Neal C. Small, M.D. dated July 3, 1997, (ii) the Merger
Agreement between SCN, Neal C. Small, M.D. & Associates, P.A. and Neal
C. Small, M.D. dated July 3, 1997, (iii) the Merger Agreement between
SCN, Alexander I. Glogau, M.D., P.A., and Alexander I. Glogau, M.D.
dated July 3, 1997, (iv) the Asset Purchase Agreement between SCN,
Allied Health Services, P.,A. and Neal C. Small, M.D. dated July 3,
1997, and (v) the Asset Purchase Agreement between SCN, Associated
Arthroscopy Institute, Inc., Alexander Glogau, M.D. and Neal C. Small,
M.D., dated July 3, 1997, shall have been consummated; and
(viii) SCN's Board of Directors shall have approved the
transactions contemplated by this Agreement in their sole and absolute
discretion.
SCN may waive any condition specified in this Section 6(a) if it executes a
writing so stating at or prior to the Closing.
(b) Conditions to Obligation of APT. The obligation of APT to
consummate the transactions contemplated by this Agreement is subject to
satisfaction of the following conditions:
(i) the transactions contemplated by this Agreement shall be
approved by APT's Board of Directors and shall receive the Requisite
APT Approval;
(ii) the representations and warranties set forth in Section 4
above shall be true and correct in all material respects at and as of
the Closing Date;
(iii) SCN shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing; and
(iv) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency
of any federal, state, local or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction, judgment, order, decree,
ruling or charge would (A) prevent consummation of any of the
transactions contemplated by this Agreement, (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation, or (C) affect adversely the right of SCN to own the
Purchased Assets.
APT may waive any condition specified in this Section 6(b) if it executes a
writing so stating at or prior to the Closing.
7. Items to be Delivered at or Prior to Closing.
(a) By the Shareholders or APT. The Shareholders or APT, as applicable,
shall execute and deliver to SCN, prior to or at the Closing:
(i) Certified resolutions of APT authorizing the execution of
all documents and the consummation of all transactions contemplated
hereby;
(ii) A Bill of Sale in substantially the form attached hereto
as Exhibit 7(a)(ii);
(iii) A Service Agreement in substantially the form attached
hereto as Exhibit 7(a)(iii);
- 17 -
<PAGE>
(iv) A certificate duly executed by the President of APT that
as of the Closing Date, all representations and warranties of APT are
true and correct, all covenants and agreements contained in the
Agreement to be performed by APT have been performed or complied with,
and all conditions to Closing have been satisfied.
(v) An opinion from APT's counsel in substantially the form
attached hereto as Exhibit 7(a)(v); and
(vi) Such other instruments as may be reasonably requested by
SCN in order to effect to or carry out the intent of this Agreement.
(b) By SCN. SCN shall deliver to APT at or prior to the Closing:
(i) Certified resolutions of SCN authorizing the execution of
all documents and the consummation of all transactions contemplated
hereby;
(ii) The Purchase Price;
(iii) An opinion from SCN's counsel in substantially the form
attached hereto as Exhibit 7(b)(ii);
(iv) A certificate, duly executed by the President of SCN,
stating as of the Closing Date, all representations and warranties of
SCN are true, all covenants and agreements contained in the Agreement
to be performed by SCN have been performed or complied with and all
conditions to Closing have been satisfied;
(v) a Service Agreement in substantially the form attached
hereto as Exhibit 7(a)(iii); and
(vi) Such other instruments as may be reasonably requested by
the Shareholders in order to effect to or carry out the intent of this
Agreement.
8. Termination.
(a) Termination of Agreement. Either of the Parties may terminate this
Agreement with the prior authorization of its board of directors (whether before
or after stockholder approval) as provided below:
(i) the Parties may terminate this Agreement by mutual written
consent at any time prior to the Closing Date;
(ii) SCN may terminate this Agreement by giving written notice
to APT at any time prior to the Closing Date (A) in the event APT has
breached any representation, warranty, or covenant contained in this
Agreement in any material respect, SCN has notified APT of the breach,
and the breach has continued without cure for a period of 30 days after
the notice of breach or (B) if the Closing shall not have occurred on
or before July 31, 1997 by reason of the failure of any condition
precedent under Section 6(a) hereof (unless the failure results
primarily from SCN breaching any representation, warranty, or covenant
contained in this Agreement); or
(iii) APT may terminate this Agreement by giving written
notice to SCN at any time prior to the Closing Date (A) in the event
SCN has breached any representation, warranty, or covenant contained in
this Agreement in any material respect, APT has notified SCN of the
breach, and the breach has continued without cure for a period of 30
days after the notice of breach or (B) if the Closing shall not have
occurred on or before July 31, 1997 by reason of the failure of any
condition precedent under Section 6(b) hereof (unless the failure
results primarily from APT breaching any representation, warranty, or
covenant contained in this Agreement).
- 18 -
<PAGE>
(b) Effect of Termination. If any Party terminates this Agreement
pursuant to Section 8(a) above, all rights and obligations of the Parties
hereunder shall terminate without any liability of any Party to any other Party
(except for any liability of any Party then in breach).
9. Indemnification.
(a) Indemnification by APT and the Shareholders. APT and the
Shareholders agree to and shall jointly and severally defend, indemnify and hold
harmless SCN, its successors and assigns, officers and directors against any and
all losses, liabilities, expenses (including without limitation reasonable
attorney's fees) and damages resulting from or arising out of the breach,
untruth or inaccuracy of any representation, warranty or covenant of APT or the
Shareholders set forth in this Agreement. Neither APT nor the Shareholders shall
be liable to SCN for any claims against APT or the Shareholders under this
Section 9(a) unless and until the aggregate of all claims against APT or the
Shareholders exceeds the sum of $25,000.00, whereupon SCN shall be entitled to
recover the full amount of all claims, including the initial $25,000.00.
(b) Notice to APT and the Shareholders; Opportunity to Defend. SCN
agrees to give prompt notice to APT and the Shareholders of the assertion of any
claim, or the commencement of any suit, action or proceeding, in respect of
which indemnity may be sought under Section 9(a). APT and the Shareholders may
participate in and at their election, or at the request of SCN, assume the
defense of any such suit, action or proceeding at APT or the Shareholders'
expense. Neither APT nor the Shareholders shall be liable under Section 9(a) for
any settlement effected without their consent of any claim, litigation or
proceeding in respect of which indemnity may be sought under Section 9(a) which
consent shall not be unreasonably withheld.
(c) General Indemnification by SCN. SCN agrees to and shall defend,
indemnify and hold harmless the Shareholders, their heirs and assigns against
any and all losses, liabilities, expenses (including without limitation
reasonable attorneys' fees) and damages resulting from the breach, untruth or
inaccuracy of any representation, warranty or covenant of SCN set forth in this
Agreement. SCN shall not be liable to the Shareholders for any claims against
SCN under this Section 9(c) unless and until the aggregate of all claims against
SCN exceeds the sum of $25,000.00, whereupon the Shareholders shall be entitled
to recover the full amount of all claims, including the initial $25,000.00.
(d) Notice to SCN; Opportunity to Defend. The Shareholders agree to
give prompt notice to SCN of the assertion of any claim, or the commencement of
any suit, action or proceeding in respect of which indemnity may be sought under
Section 9(c). SCN may participate in and at its election, or at the request of
the Shareholders, assume the defense of any such suit, action or proceeding at
SCN's expense. SCN shall not be liable under Section 9(c) for any settlement
effected without its consent of any claim, litigation or proceeding in respect
of which indemnity may be sought hereunder, which consent shall not be
unreasonably withheld.
(e) Right of Setoff. In the event of any breach of warranty,
representation, covenant or agreement by APT or the Shareholders giving rise to
indemnification to SCN under Section 9(a) hereof, SCN shall be entitled to
offset the amount of damages incurred by it as a result of such breach of
warranty, representation, covenant or agreement against the amounts payable to
the Shareholders or APT under the Service Agreement. In the event that SCN
determines that an amount is to be so offset, as a condition precedent to such
right of setoff, SCN shall give the Shareholders written notice of the amount of
such proposed setoff and the basis therefor within thirty (30) days after the
date on which such amount is finally determined. If SCN shall not have received
written notice from the Shareholders contesting such setoff within twenty (20)
days of their receipt of such written notice from SCN, the setoff shall be
deemed to have been consented to by the Shareholders, and SCN shall be entitled
to deduct the entire amount claimed as a setoff from the next succeeding amounts
payable under the Service Agreement. In the event that the Shareholders shall
object to the proposed setoff by written notice received by SCN during such
twenty (20) day period, the entitlement of SCN to the claimed setoff shall be
determined as set forth in Section 10.4.3 of the Service Agreement.
- 19 -
<PAGE>
10. Miscellaneous.
(a) Survival. The representations and warranties of the Shareholders,
APT and SCN contained in this Agreement and the indemnifications contained
herein shall survive the Closing. No claim for indemnification with respect to
any alleged misrepresentation or breach of warranty may be made after three (3)
years following the Closing Date. Any matter to which indemnification pertains
and with respect to which a claim has been asserted or threatened following the
Closing Date shall continue to be subject to the indemnification under this
Agreement until finally terminated, settled, resolved or adjudicated; and all
terms, conditions and stipulations of this Agreement shall likewise continue to
apply.
(b) No Third-Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
(c) Entire Agreement. This Agreement (including the documents referred
to herein) constitutes the entire agreement between the Parties and supersedes
any prior understandings, agreements, or representations by or between the
Parties, written or oral, to the extent they related in any way to the subject
matter hereof.
(d) Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other Party.
(e) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(f) Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(g) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to APT: Copy to:
Neal C. Small, M.D. Loren Weinstein
Alexander I. Glogau, M.D. 4031 West Plano Parkway
4031 West Plano Parkway Plano, Texas 75093
Plano, Texas 75093 Facsimile: (972) 964-3469
Facsimile: (972) 964-3469
If to SCN: Copy to:
Kerry R. Hicks, President David T. Popwell
Specialty Care Network, Inc. Baker, Donelson, Bearman & Caldwell
44 Union Boulevard, Suite 600 165 Madison Ave., Ste. 2000 Madison
Lakewood, Colorado 80228 Ave, Suite 2100
Facsimile: (303) 716-1298 Memphis, Tennessee 38103
Facsimile: (901) 577-2303
- 20 -
<PAGE>
Any party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other party
notice in the manner herein set forth.
(h) Governing Law Venue. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of Texas without
giving effect to any choice or conflict of law provision or rule (whether of the
State of Texas or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of Texas. Each of the parties
submits to the jurisdiction of any state or federal court sitting in Denver,
Colorado, in any action or proceeding arising out of or relating to this
Agreement and agrees that all claims in respect of the action or proceeding may
be heard and determined in any such court. Each party also agrees not to bring
any action or proceeding arising out of or relating to this Agreement in any
other court. Each of the parties waives any defense of inconvenient forum to the
maintenance of any action or proceeding so brought and waives any bond, surety,
or other security that might be required of any other party with respect
thereto.
(i) Amendments and Waivers. The Parties may mutually amend any
provision of this Agreement at any time prior to the Effective Time with the
prior authorization of their respective boards of directors; provided, however,
that any amendment effected subsequent to stockholder approval will be subject
to the restrictions contained in the Texas Business Corporation Act. No
amendment of any provision of this Agreement shall be valid unless the same
shall be in writing and signed by each of the Parties. No waiver by any party of
any default, misrepresentation, or breach of warranty or covenant hereunder,
whether intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
(j) Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(k) Expenses. Each of the Parties will bear its own costs and expenses
(including legal fees and expenses) incurred in connection with this Agreement
and the transactions contemplated hereby.
(l) Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context otherwise requires. The
word "including" shall mean including without limitation.
(m) No Referrals Required. The Parties agree that no part of this
Agreement shall be construed to induce or encourage the referral of patients or
the purchase of health care services or supplies. The Parties acknowledge that
there is no requirement under this Agreement or any other agreement between APT
and SCN that any party refer any patients to any health care provider or
purchase any health care goods or services from any source. Additionally, no
payment under this Agreement is in return for the referral of patients, if any,
or in return for purchasing, leasing or ordering services from SCN or any of
SCN's affiliates. The Parties may refer patients to any company or person
providing services and will make such referrals, if any, consistent with
professional medical judgment and the needs and wishes of the relevant patients.
- 21 -
<PAGE>
(n) Incorporation of Exhibits and Schedules. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
* * * * *
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
SCN:
SPECIALTY CARE NETWORK, INC.
By:______________________________________
Title:___________________________________
APT:
ACCESS MEDICAL SUPPLY, INC. D/B/A
ASSOCIATED PHYSICAL THERAPY
By:______________________________________
Title:___________________________________
SHAREHOLDERS:
-----------------------------------------
ALEXANDER I. GLOGAU, M.D.
-----------------------------------------
NEAL C. SMALL, M.D.
- 22 -
<PAGE>
ASSET PURCHASE AGREEMENT
By and Among
SPECIALTY CARE NETWORK, INC.,
ALLIED HEALTH SERVICES, P.A. D/B/A ASSOCIATED OCCUPATIONAL REHABILITATION
and
NEAL C. SMALL, M.D.
Dated as of July 3, 1997
<PAGE>
TABLE OF CONTENTS
-----------------
(This Table of Contents is not a part of the Agreement and is only for
convenience of reference.)
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Definitions...................................................................................................1
2. Basic Transaction.............................................................................................4
(a) Purchase and Sale of Assets.........................................................................4
(b) Assumption of Liabilities...........................................................................4
(c) Purchase Price......................................................................................5
(d) The Closing.........................................................................................5
(e) Deliveries at Closing...............................................................................5
(f) Proration...........................................................................................5
(g) Taxes and Expenses..................................................................................5
(h) Allocation..........................................................................................6
(i) Employees...........................................................................................6
3. Representations and Warranties of AOR and the Physician Owner.................................................6
(a) Organization, Qualification, and Power..............................................................6
(b) Ownership Interest of AOR...........................................................................6
(c) Authorization of Transaction........................................................................6
(d) Noncontravention....................................................................................6
(e) Subsidiaries and Investments........................................................................7
(f) Financial Statements................................................................................7
(g) Undisclosed Liabilities.............................................................................7
(h) Brokers' Fees.......................................................................................7
(i) Material Contracts..................................................................................7
(j) Insurance; Malpractice..............................................................................8
(k) No Changes Prior to Closing Date....................................................................8
(l) Title; Condition....................................................................................9
(m) Litigation..........................................................................................9
(n) Permits and Licenses................................................................................9
(o) Tax Matters.........................................................................................9
(p) Employee Benefit Plans..............................................................................9
(q) Third-Party Relations..............................................................................10
(r) Compliance with Applicable Laws....................................................................11
(s) Employee Compensation..............................................................................11
(t) Environmental Matters..............................................................................11
(u) Healthcare Compliance..............................................................................11
(v) Fraud and Abuse....................................................................................12
(w) Practice Compliance................................................................................12
(x) Rates and Reimbursement Policies...................................................................12
(y) Accounts Receivable................................................................................12
(z) Guaranties.........................................................................................13
(aa) Powers of Attorney................................................................................13
(bb) Tangible Assets...................................................................................13
(cc) Full .............................................................................................13
</TABLE>
- ii -
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
4. Representations and Warranties of SCN........................................................................13
(a) Organization.......................................................................................13
(b) Authorization of Transaction.......................................................................13
(c) Noncontravention...................................................................................13
(d) Brokers' Fees......................................................................................13
(e) Securities Filings.................................................................................13
5. Covenants....................................................................................................14
(a) General............................................................................................14
(b) Notices and Consents...............................................................................14
(c) Regulatory Matters and Approvals...................................................................14
(d) Operation of Business..............................................................................14
(e) Further Acts and Assurances........................................................................14
(f) Full Access........................................................................................15
(g) Notice of Developments.............................................................................15
(h) Exclusivity........................................................................................15
(i) Collection of Accounts Receivable..................................................................15
(j) Corporate Authorization............................................................................15
(k) Malpractice Insurance..............................................................................15
(l) Employee Benefit Plans.............................................................................15
6. Conditions to Obligation to Close............................................................................15
(a) Conditions to Obligation of SCN....................................................................15
(b) Conditions to Obligation of AOR....................................................................16
7. Items to be Delivered at or Prior to Closing.................................................................17
(a) By the Physician Owner or AOR......................................................................17
(b) By SCN.............................................................................................17
8. Termination..................................................................................................17
(a) Termination of Agreement...........................................................................17
(b) Effect of Termination..............................................................................18
9. Indemnification..............................................................................................18
(a) Indemnification by AOR and the Physician Owner.....................................................18
(b) Notice to AOR and the Physician Owner; Opportunity to Defend.......................................18
(c) General Indemnification by SCN.....................................................................18
(d) Notice to SCN; Opportunity to Defend...............................................................19
(e) Right of Setoff....................................................................................19
10. Miscellaneous...............................................................................................19
(a) Survival...........................................................................................19
(b) No Third-Party Beneficiaries.......................................................................19
(c) Entire Agreement...................................................................................19
(d) Succession and Assignment..........................................................................19
(e) Counterparts.......................................................................................19
(f) Headings...........................................................................................19
</TABLE>
- iii -
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
(g) Notices............................................................................................19
(h) Governing Law Venue................................................................................20
(i) Amendments and Waivers.............................................................................20
(j) Severability.......................................................................................20
(k) Expenses...........................................................................................21
(l) Construction.......................................................................................21
(m) No Referrals Required..............................................................................21
(n) Incorporation of Exhibits and Schedules............................................................21
</TABLE>
<TABLE>
<S> <C>
SCHEDULE 1(a) REAL PROPERTY...................................................Schedule 1(a)-1
SCHEDULE 1(b) FURNITURE, FIXTURES & EQUIPMENT.................................Schedule 1(b)-1
SCHEDULE 1(d) LEASES OF PERSONAL PROPERTY.....................................Schedule 1(d)-1
SCHEDULE 2(b) ASSUMED LIABILITIES.............................................Schedule 2(b)-1
EXHIBIT 2(h) PURCHASE PRICE ALLOCATION AGREEMENT..............................Exhibit 2(h)-1
EXHIBIT 7(a)(ii) BILL OF SALE.................................................Exhibit 7(a)(ii)-1
EXHIBIT 7(a)(iii) SERVICE AGREEMENT...........................................Exhibit 7(a)(iii)-1
EXHIBIT 7(a)(v) AOR OPINION LETTER............................................Exhibit 7(a)(v)-1
EXHIBIT 7(b)(ii) SCN OPINION LETTER...........................................Exhibit 7(b)(ii)-1
</TABLE>
- iv -
<PAGE>
ASSET PURCHASE AGREEMENT
------------------------
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is entered into as of
July 3, 1997, by and among ALLIED HEALTH SERVICES, P.A. D/B/A ASSOCIATED
OCCUPATIONAL REHABILITATION, a Texas professional association ("AOR"), and NEAL
C. SMALL, M.D. , resident of the State of Texas (the "Physician Owner"), on the
one hand, and SPECIALTY CARE NETWORK, INC., a Delaware corporation ("SCN"), on
the other hand. SCN, AOR and the Physician Owner are referred to collectively
herein as the "Parties."
W I T N E S S E T H:
WHEREAS, AOR is a Texas professional association which owns the assets
which are used by and/or result from the Physician Owner's practice of medicine;
WHEREAS, the Physician Owner is a medical doctor practicing medicine in
the State of Texas;
WHEREAS, the Parties anticipate that the transaction contemplated by
this Agreement will further certain of their business objectives; and
WHEREAS, the Parties desire to set forth in writing the terms and
conditions under which said transaction will be consummated.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the Parties, it is agreed as
follows:
1. Definitions.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Agreement" has the meaning set forth in the preface above.
"Applicable Laws" has the meaning set forth in Section 3(r) below.
"Assumed Liabilities" has the meaning set forth in Section 2(b) below.
"Texas Professional Association Act" means the Professional Association
Act of the State of Texas, as amended.
"Closing Date" has the meaning set forth in Section 2(d) below.
"AOR" has the meaning set forth in the preface above.
"Closing" has the meaning set forth in Section 2(d) below.
"Code" means the Internal Revenue Code of 1986, as amended.
"Delaware General Corporation Law" means the General Corporation Law of
the State of Delaware, as amended.
- 1 -
<PAGE>
"Disclosure Schedule" has the meaning set forth in Section 3 below.
"Employee Benefit Plans" has the meaning set forth in Section 3(p)(i)
below.
"Environmental Laws" means all federal, state, and local laws, rules,
regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and
charges thereunder and other governmental requirements relating to pollution,
control of chemicals, storage and handling of petroleum products, management of
waste (including biohazardous or biomedical waste), discharges of materials into
the environment, health, safety, natural resources, and the environment,
including laws relating to emissions, discharges, releases, or threatened
releases of pollutants, contaminants, or chemical, industrial, hazardous, or
toxic materials or wastes into ambient air, surface water, ground water, or
lands or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling of pollutants,
contaminants, or chemical, industrial, hazardous, or toxic materials or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Excluded Assets" means (a) the Articles of Association, qualifications
to conduct business as a foreign corporation, arrangements with registered
agents relating to foreign qualifications, taxpayer and other identification
numbers, seals, minute books, transfer books, and other documents relating to
the organization, maintenance, and existence of AOR as a professional
association, (b) employment or noncompete agreements between AOR and those
licensed medical doctors under contract with AOR to provide medical services to
AOR patients, (c) all patient records and patient lists, (d) all insurance
policies of AOR and all claims arising thereunder and all prepaid expenses on
malpractice insurance premiums, (e) the inventories, cash, and accounts
receivable disposed of, cancelled, expanded or collected, as the case may be, by
AOR after the date hereof and prior to the Closing in the Ordinary Course of
Business and consistent with past practice, (f) personal property of the
individual Physician Owner which is not included on the financial statements of
AOR, (g) AOR's cash on hand as of the Closing Date, (h) AOR's third party
provider agreements and all of AOR's "provider numbers", (i) all drugs owned by
AOR, and (j) any rights of AOR under this Agreement or any related document or
under any other agreement between AOR on the one hand and SCN on the other hand
entered into on or after the date of this Agreement.
"GAAP" means United States generally accepted accounting principles as
in effect from time to time.
"Hazardous Materials" has the meaning set forth in Section 3(t) below.
"IRS" means the Internal Revenue Service.
"Knowledge" means actual Knowledge after reasonable investigation.
"Medical Waste" includes, but is not limited to, pathological waste,
blood, sharps, wastes from surgery or autopsy, dialysis waste, including
contaminated disposable equipment and supplies, cultures and stock of infectious
agents and associated biological agents, contaminated animals, isolation wastes,
contaminated equipment, laboratory waste, various other biological waste and
discarded materials contaminated with or exposed to blood, excretion or
secretion from human beings or animals, and any substance, pollutant, material
or contaminant listed or regulated under the Medical Waste Tracking Act of 1988,
42 U.S.C. ss.ss. 6992, et seq.
"Medical Waste Law" means the Medical Waste Tracking Act of 1988, as
amended, the U.S. Public Vessel Medical Waste Anti-Dumping Act of 1988, 33
U.S.C.A. ss.ss. 2501, et seq., the Marine Protection, Research and Sanctuaries
Act of 1972, 33 U.S.C.A. ss.ss. 1401, et seq., the Occupational Safety and
Health Act, 29 U.S.C.A. ss.ss. 651, et seq., the United States Department of
Health and Human Services, National Institute for Occupational Self-Safety and
Health Infectious Waste Disposal Guidelines, Publication No. 88-119, all
regulations and orders issued pursuant
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to any of the foregoing, and any other federal, state, regional, county,
municipal or other local laws, regulations and ordinances insofar as they
purport to regulate Medical Waste or impose requirements relating to Medical
Waste.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice.
"Parties" has the meaning set forth in the preface above.
"Person" means an individual, a partnership, a limited liability
company, a corporation, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization, or a governmental entity (or any
department, agency, or political subdivision thereof).
"PBGC" has the meaning set forth in Section 3(p)(ii) below.
"Physician Owner" has the meaning set forth in the preface above.
"Purchase Price" has the meaning set forth in Section 2(a) below.
"Purchased Assets" means all of AOR's right, title, and interest in and
to the following assets of AOR owned as of the Closing Date:
(a) any and all leaseholds and subleaseholds in real property,
improvements, fixtures, and fittings thereon, and easements, rights-of-way, and
other appurtenances and hereditaments thereto (such as appurtenant rights in and
to public streets), including the assets described on Schedule 1(a) attached
hereto (the "Real Property"),
(b) any and all furniture, fixtures, equipment and other capital assets
of AOR, including items described on Schedule 1(b) attached hereto,
(c) any and all inventory of supplies, janitorial and office supplies,
and other disposables and consumables on hand at the Closing Date (excluding
drugs),
(d) any and all leases or subleases of equipment or other personal
property, and rights thereunder as described on Schedule 1(d) attached hereto,
(e) any and all Intellectual Property, goodwill associated therewith,
licenses and sublicenses granted and obtained with respect thereto, and rights
thereunder, remedies against infringements thereof, and rights to protection of
interests therein under the laws of all jurisdictions,
(f) any and all agreements, contracts, indentures, mortgages,
instruments, Security Interests, guaranties, other similar arrangements, and
rights thereunder,
(g) any and all claims, deposits, prepayments, refunds, causes of
action, choses in action, rights of recovery, rights of set off, and rights of
recoupment (except any such item relating to the payment of Taxes),
(h) any and all franchises, approvals, permits, licenses, orders,
registrations, certificates, variances, and similar rights obtained from
governments and governmental agencies,
(i) any and all books, records, ledgers, files, documents,
correspondence, lists, plats, architectural plans, drawings, and specifications,
creative materials, advertising and promotional materials, studies, reports, and
other printed or written materials (excluding patient medical records),
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(j) any and all accounts receivable (excluding governmental
receivables) of AOR as the same exist on the Closing Date and all rights to
receive payments on governmental receivables after payments on such governmental
receivables are received by AOR, which accounts receivable shall include all
uncollected patient accounts of AOR on the Closing Date.
The term "Purchased Assets" shall not include any specific item included within
the definition of Excluded Assets below.
"Real Property" has the meaning set forth within the definition of
Acquired Assets in this Section 1.
"Requisite AOR Approval" means the affirmative vote of the holders of
the requisite percentage of the shares of AOR which is required by the Texas
Professional Association Act to approve the transactions contemplated by this
Agreement.
"Requisite SCN Board of Directors Approval" means the affirmative vote
of the holders of a majority of the SCN Board of Directors in favor of this
Agreement.
"SCN" has the meaning set forth in the preface above.
. "Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance,
charge or other security interest other than (a) mechanic's, materialmen's or
similar lien, (b) liens for taxes not yet due and payable or for taxes that the
taxpayer is contesting in good faith through appropriate proceedings, (c)
purchase money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.
"Service Agreement" means that certain Service Agreement dated as of
the Closing Date by and among SCN, AOR, and the Physician Owner, in
substantially the form attached hereto as Exhibit 7(a)(iii).
"Subsidiary" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) owns a majority of the common stock or has the
power to vote or direct the voting of sufficient securities to elect a majority
of the directors.
2. Basic Transaction.
(a) Purchase and Sale of Assets. At the Closing, on and subject to the
terms and conditions of this Agreement, AOR agrees to transfer, sell, convey and
deliver to SCN, and SCN agrees to purchase, all of the Purchased Assets for a
price equal to $412,909 (the "Purchase Price") to be paid or satisfied as set
forth in Section 2(c).
(b) Assumption of Liabilities. Except as otherwise provided herein, SCN
shall assume at the Closing Date, and shall perform or discharge on or after the
Closing Date, only (i) the contracts, leases, commitments, obligations and
liabilities of AOR which are listed on Schedule 2(b) attached hereto, (ii) all
of AOR's trade payables (rent, utilities, telephone, etc.) incurred by AOR
during the thirty day period prior to the Closing Date and in the Ordinary
Course of Business and (iii) AOR's state franchise tax liability not to exceed,
in the aggregate with the state franchise tax liabilities of Neal C. Small,
M.D., P.A., Associated Arthroscopy Institute, Inc., Access Medical Supply, Inc.,
Alexander I. Glogau, M.D., P.A. and Neal C. Small, M.D. and Associates, P.A.
being assumed by SCN pursuant to the agreements referred to in
Section 6(a)(vii) below, $160,000 (collectively, the "Assumed Liabilities"),
and shall assume no other liabilities
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of AOR. Notwithstanding any contrary provision contained herein, SCN shall not
be deemed to have assumed, nor shall SCN assume: (i) any liability which may be
incurred by reason of any breach of or default under such contracts, leases,
commitments or obligations which occurred prior to the Closing Date; (ii) any
liability for any employee benefits payable to employees of AOR, including, but
not limited to, liabilities arising under any Employee Benefit Plan of AOR;
(iii) any liability based upon or arising out of a violation of any laws by AOR,
including, without limiting the generality of the foregoing, any such liability
which may arise in connection with agreements, contracts, commitments or
provision of services by AOR or the Physician Owner; (iv) any liability based
upon or arising out of any tortious or wrongful actions
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of AOR or the Physician Owner, or (v) any liability for the payment of any
taxes imposed by law on AOR arising from any activities of AOR prior to the
Closing Date or by reason of the transactions contemplated by this Agreement.
(c) Purchase Price. SCN shall pay or satisfy the Purchase Price at the
Closing by delivering to AOR $412,909 in cash, payable by wire transfer or
delivery of immediately available funds, representing the balance of the
Purchase Price.
(d) The Closing. The closing of the transaction (the "Closing") shall
take place at the offices of AOR, 4031 West Plano Parkway, Plano, Texas 75093,
commencing at 9:00 a.m. local time on the second business day following the
satisfaction or waiver of all conditions to the obligations of the Parties to
consummate the transactions contemplated hereby or such other date as the
Parties may mutually determine (the "Closing Date"); provided, however, that the
Closing Date shall be no later than July 31, 1997. Time is of the essence for
this Agreement.
(e) Deliveries at Closing. At the Closing, (i) SCN will deliver to AOR
the various certificates, instruments, and documents referred to in Section 7(b)
below; (ii) AOR will deliver to SCN the various certificates, instruments, and
documents referred to in Section 7(a) below.
(f) Proration. The following prorations among the Parties shall be made
as of the Closing Date. Except as provided for in Section 2(b), AOR shall remain
liable to the extent such items relate to any time period up to the Closing Date
and SCN shall be liable (solely pursuant to the terms of the Service Agreement)
to the extent such items relate to periods on and after the Closing Date:
(i) Any ad valorem taxes, including, without limitation,
personal property taxes and assessments, and other taxes, if any, on or
with respect to the Purchased Assets,
(ii) Rents, additional rents, taxes and other items payable by
AOR under any lease, license, permit, contract or any other agreement
or arrangement to be assigned to or assumed by SCN, and
(iii) The amount of rents, taxes, and charges for sewer,
water, fuel, telephone, electricity, and other utilities; provided,
that if practicable, a meter reading shall be take on the Closing Date
and the respective obligations of the Parties determined in accordance
with such readings.
To the extent possible, the net amount of all such prorations will be
settled in cash at the Closing. If the actual expense of any of the above items
for the billing period in which the Closing Date falls is not known at the
Closing, the proration shall be made based on the expense incurred in the
previous billing cycle, for expenses billed less often than quarterly, and on
the average expense incurred in the preceding three (3) billing periods, for
expense bill quarterly or more often.
(g) Taxes and Expenses. AOR shall be responsible for any business,
occupation, withholding or similar tax or taxes of any kind related to AOR's
business for any period prior to the Closing Date. All applicable sales, use and
tangible taxes, documentary stamp taxes, filing and recording costs and other
transfer taxes, costs and fees relating to the transfer of title to the
Purchased Assets, and the consummation of the transactions described herein,
shall be paid by AOR.
(h) Allocation. The Parties agree to allocate the Purchase Price among
the Purchased Assets (and all other capitalizable costs) among the Purchased
Assets for all purposes (including financial accounting and tax purposes) in
accordance with the Purchase Price Allocation Agreement attached hereto as
Exhibit 2(h).
(i) Employees. As of the Closing Date, AOR shall terminate all the
employees of AOR other than Physician Employees and Technical Employees (both as
defined in the Service Agreement). SCN or an Affiliate of SCN may
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offer to hire such terminated employees as it desires. AOR shall retain
responsibility under any and all employment agreements with respect to
terminated employees. AOR hereby covenants and agrees that it will take whatever
steps are necessary to pay or fund completely or reserve completely for any
accrued benefits, where applicable, or vested accrued benefits for which AOR or
any entity might have any liability whatsoever arising from any salary, wage,
benefit, bonus, sick leave, insurance, employment tax or similar liability of
AOR to any employee or other person or entity (including, without limitation,
any Employee Benefit Plan of AOR and any liability under employment contracts
with AOR) allocable to services performed prior to the Closing Date. AOR
acknowledges that the purpose and intent of this covenant is to assure that SCN
shall have no liability whatsoever at any time in the future with respect to any
of AOR's employees or similar persons or entities, including, without
limitation, any Employee Benefit Plan of AOR.
3. Representations and Warranties of AOR and the Physician Owner. AOR
and the Physician Owner, jointly and severally, represent and warrant to SCN
that the statements contained in this Section 3 are correct and complete as of
the date of this Agreement and will be correct and complete as of the Closing
Date (as though made then and as though the Closing Date were substituted for
the date of this Agreement throughout this Section 3), except as set forth in
the disclosure schedule (the "Disclosure Schedule"). The Disclosure Schedule
will be arranged in paragraphs corresponding to the numbered and lettered
paragraphs contained in this Section 3 and Section 4.
(a) Organization, Qualification, and Power. AOR is a professional
association duly organized, validly existing, and in good standing under the
laws of the State of Texas. AOR is duly authorized to conduct business and is in
good standing under the laws of each jurisdiction in which the character or
location of the properties owned or the business conducted by AOR makes such
qualification necessary. AOR has the full power and authority to carry on the
business in which it is engaged and to own and use the properties owned, leased
and used by it.
(b) Ownership Interest of AOR. AOR is owned in the manner set forth in
Section 3(b) of the Disclosure Schedule. Except as set forth in Section 3(b) of
the Disclosure Schedule, there are no other shares of any form authorized or
outstanding.
(c) Authorization of Transaction. AOR has the full power and authority
to execute and deliver this Agreement and to perform its obligations hereunder.
This Agreement constitutes the valid and legally binding obligation of AOR and
the Physician Owner, enforceable in accordance with its terms and conditions.
(d) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge or other restriction of any government,
governmental agency, professional regulatory organization or court to which AOR
is subject or any provision of the Articles of Association or bylaws of AOR or
(ii) conflict with, result in a breach of, constitute a default under, result in
the acceleration of, create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice under any agreement, contract, lease,
license, instrument or other arrangement to which AOR is a party or by which it
is bound or to which any of its assets is subject (or result in the imposition
of any Security Interest upon any of its assets). AOR is not required to give
any notice to, make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order for the Parties to
consummate the transactions contemplated by this Agreement.
(e) Subsidiaries and Investments. AOR does not own, directly or
indirectly, any capital stock or other equity ownership or proprietary interest
in any other corporation, partnership, association, limited liability company,
trust, joint venture or other entity.
(f) Financial Statements. AOR has furnished SCN with unaudited balance
sheets dated December 31, 1995 and 1996 and May 31, 1997, and unaudited income
statements for the twelve (12) month periods ending December 31, 1996, 1995 and
1994 and the five (5) months ended May 31, 1997. Such financial statements,
including the notes thereto, except as indicated therein, were prepared on a
basis consistent with past accounting practices of AOR and fairly
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present the results of operations for the periods noted therein. The balance
sheets of AOR delivered by AOR to SCN fairly present the financial condition of
AOR at the date thereof, and except as indicated therein, reflect all claims
against and all debts and liabilities of AOR fixed or contingent, as of the date
thereof.
(g) Undisclosed Liabilities. AOR has no uninsured liability (whether
known or unknown, asserted or unasserted, absolute or contingent, accrued or
unaccrued, liquidated or unliquidated, and whether due or to become due),
including any liability for taxes, except for (i) liabilities set forth on the
face of the balance sheet dated as of December 31, 1996 and (ii) liabilities
which have arisen after December 31, 1996 in the Ordinary Course of Business
(none of which results from, arises out of, relates to, is in the nature of, or
was caused by any breach of contract, breach of warranty, tort, infringement, or
violation of law).
(h) Brokers' Fees. AOR does not have any liability or obligation to pay
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement.
(i) Material Contracts. Section 3(i) of the Disclosure Schedule lists
the following contracts and other material agreements to which AOR is a party:
(i) any agreement (or group of related agreements) for the
lease of real or personal property to or from any Person;
(ii) any agreement (or group of related agreements) for the
purchase or sale of supplies, products, or other personal property or
for the furnishing or receipt of services;
(iii) any agreement concerning a partnership, limited
liability company or joint venture;
(iv) any agreement (or group of related agreements) under
which AOR has created, incurred, assumed, or guaranteed any
indebtedness for borrowed money, or any capitalized lease obligation
pursuant to which it has imposed a Security Interest in respect of any
of its assets, tangible or intangible;
(v) any agreement concerning confidentiality or
noncompetition;
(vi) any profit sharing, option, deferred compensation,
severance, or other plan or arrangement for the benefit of AOR's
current or former owners, directors, partners, managers, officers,
and/or employees;
(vii) any agreement for the employment of any individual on a
full-time, part-time, consulting, or other basis providing annual
compensation in excess of $25,000 or providing severance benefits;
(viii) any agreement pursuant to which AOR has advanced or
loaned any amount to any of its directors, officers, and employees;
(ix) any agreement pursuant to which the consequences of a
default or termination could have a material adverse effect on the
business, financial condition, operations, results of operations, or
future prospects of AOR;
(x) any third-party provider agreements; or
(xi) any other agreement (or group of related agreements)
outside the ordinary course of AOR's business or operations the
performance of which involves consideration in excess of $15,000.
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AOR has delivered or given SCN access to a correct and complete copy of each
written agreement listed in Section 3(i) of the Disclosure Schedule (as amended
through the Closing Date) and a written summary setting forth the terms and
conditions of each oral agreement referred to in Section 3(i) of the Disclosure
Schedule. With respect to each such agreement: (A) the agreement is legal,
valid, binding, enforceable, and in full force and effect; (B) except as set
forth in Section 3(i) of the Disclosure Schedule, no notice of this Agreement or
consent of any third party is required in order for AOR to execute and deliver
this Agreement or to consummate the transactions contemplated hereby, and, after
assignment to SCN at Closing, the agreement will continue to be legal, valid,
binding, enforceable, and in full force and effect on identical terms; (C) no
party is in breach or default, and no event has occurred which with notice or
lapse of time would constitute a breach or default, or permit termination,
modification, or acceleration, under the agreement; and (D) no party has
repudiated any provision of the agreement. SCN shall have no obligation to
assume AOR's obligations under any agreement listed in Section 3(i) of the
Disclosure Schedule unless such obligation is also listed on Schedule 2(b)
(j) Insurance; Malpractice. Section 3(j) of the Disclosure Schedule
contains a list and brief description of all policies or binders of fire,
liability, product liability, workers compensation, health and other forms of
insurance policies or binders currently in force insuring against risks which
will remain in full force and effect at least through the Closing Date. Section
3(j) of the Disclosure Schedule contains a description of all current
malpractice liability insurance policies of the Physician Owner, AOR and AOR's
professional employees and all predecessor policies in effect since February 1,
1990. Neither AOR, the Physician Owner, nor AOR's professional employees have,
in the last seven (7) years, filed a written application for any insurance
coverage relating to AOR's business or property which has been denied by an
insurance agency or carrier. AOR, AOR's professional employees and the Physician
Owner have been continuously insured for professional malpractice claims during
the same period. Section 3(j) of the Disclosure Schedule also sets forth a list
of all claims for any insured loss in excess of Five Thousand Dollars
($5,000.00) per occurrence filed by or against AOR, AOR's professional employees
or the Physician Owner during the three (3) year period immediately preceding
the date hereof, including workers compensation, general liability,
environmental liability and professional malpractice liability claims. None of
AOR, AOR's professional employees or the Physician Owner is in material default
with respect to any provision contained in any such policy and none of them has
failed to give any notice or present any claim under any such policy in due and
timely fashion.
(k) No Changes Prior to Closing Date. During the period from December
31, 1996 through the date hereof, AOR has not (i) incurred any liability or
obligation of any nature (whether known or unknown, asserted or unasserted,
absolute or contingent, accrued or unaccrued, liquidated or unliquidated and
whether due or to become due), except in the Ordinary Course of Business, (ii)
written off as uncollectible any notes or accounts receivable, except write-offs
in the Ordinary Course of Business charged to applicable reserves, none of which
individually or in the aggregate is material to AOR, (iii) conducted its
business in such a manner so as to materially increase its accounts payable or
so as to materially decrease its accounts receivable, (iv) granted any increase
in the rate of wages, salaries, bonuses, or other remunerations of any employee,
except in the Ordinary Course of Business, (v) canceled or waived any claims or
rights of substantial value, (vi) made any change in any method of accounting,
(vii) otherwise conducted its business or entered into any transaction, except
in the usual and ordinary manner and in the Ordinary Course of Business, (viii)
agreed, whether or not in writing, to do any of the foregoing, or (ix) disposed
of its assets other than in the Ordinary Course of Business.
(l) Title; Condition. AOR has, or will have at the Closing Date, good
and marketable title to all of the Purchased Assets subject to no mortgage,
pledge, lien, lease, conditional sales agreement, option, right of first refusal
or any other encumbrance or charge, including taxes. AOR agrees to remove all
security interests reflected on any search of public records, if any, prior to
the Closing Date and to remove any other security interest filed with respect to
the Purchased Assets between the date of such search of public records and the
Closing Date.
(m) Litigation. There is no suit, action, proceeding at law or
in equity, arbitration, administrative proceeding or other proceeding
or investigation by any governmental entity pending, or threatened
against, or affecting AOR or
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any of the Purchased Assets, or any physician or other health care professional
engaged or employed by AOR, and there is no basis for any of the foregoing. None
of the actions, suits, proceedings, hearings, and investigations set forth in
Section 3(m) of the Disclosure Schedule could result in any material adverse
change in the operations, results of operations, or future prospects of the
business assets to be operated by SCN after the Closing.
(n) Permits and Licenses. AOR and all physicians and other health care
professionals engaged or employed by AOR have all permits and licenses required
by all applicable laws; have made all regulatory filings necessary for the
conduct of AOR's business; and are not in violation of any of said permitting or
licensing requirements.
(o) Tax Matters. All federal, state and other tax returns of AOR
required by law to be filed have been timely filed, and AOR has paid or
adequately provided for all taxes (including taxes on properties, income,
franchises, licenses, sales and payrolls) which have become due pursuant to such
returns or pursuant to any assessment, except for any taxes and assessments, the
amount, applicability or validity of which is currently being contested in good
faith by appropriate proceedings and with respect to which AOR has set aside on
its books adequate reserves. There are no tax liens on any of AOR's assets
except those with respect to taxes not yet due and payable. There are no pending
tax examinations of AOR's tax returns nor has AOR received a revenue agent's
report asserting a tax deficiency in the last twelve (12) months. There are not
and will not be at the Closing Date, any claims pending or asserted against AOR
for unpaid taxes by any federal, state or other governmental body. AOR has
withheld from each payment made to employees of AOR the amount of all taxes
(including, but not limited to, federal, state and local income taxes and
Federal Insurance Contribution Act taxes) required to be withheld therefrom and
all amounts customarily withheld therefrom, and has set aside all other employee
contributions or payments customarily set aside with respect to such wages and
has paid or will pay the same to, or has deposited or will deposit such payment
with, the proper tax receiving officers or other appropriate authorities.
(p) Employee Benefit Plans.
(i) List of Plans. Section 3(p) of the Disclosure Schedule
contains an accurate and complete list of all employee benefit plans
("Employee Benefit Plans") within the meaning of Section 3(3) of ERISA,
whether or not any Employee Benefit Plans are otherwise exempt from the
provisions of ERISA, established, maintained or contributed to by AOR
(including all employers (whether or not incorporated) which by reason
of common control are treated together with AOR and/or the Physician
Owner as a single employer within the meaning of Section 414 of the
Code) since September 2, 1974.
(ii) Status of Plans. AOR has never maintained and does not
now maintain or contribute to any Employee Benefit Plan subject to
ERISA, which is not in substantial compliance with ERISA or which has
incurred any accumulated funding deficiency within the meaning of
Section 412 or 418B of the Code, or which has applied for or obtained a
waiver from the Internal Revenue Service of any minimum funding
requirement under Section 412 of the Code or which is subject to Title
IV of ERISA. AOR has not incurred any liability to the Pension Benefit
Guaranty Corporation ("PBGC") in connection with any Employee Benefit
Plan covering any employees of AOR or ceased operations at any facility
or withdrawn from any such Plan in a manner which could subject it to
liability under Section 4062(f), 4063 or 4064 of ERISA, and knows of no
facts or circumstances which might give rise to any liability of AOR to
the PBGC under Title IV of ERISA which could reasonably be anticipated
to result in any claims being made against AOR by the PBGC. AOR has not
incurred any withdrawal liability (including any contingent or
secondary withdrawal liability) within the meaning of Sections 4201 and
4202 of ERISA, to any Employee Benefit Plan which is a Multiemployer
Plan (as defined in Section 4001 of ERISA), and no event has
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occurred, and there exists no condition or set of circumstances, which
represent a material risk of the occurrence of any withdrawal from or
the partition, termination, reorganization or insolvency of any
Multiemployer Plan which would result in any liability of AOR.
(iii) Contributions. Full payment has been made of all amounts
which AOR is required, under applicable law or under any Employee
Benefit Plan or any agreement relating to any Employee Benefit Plan to
which AOR is a party, to have paid as contributions thereto as of the
last day of the most recent plan year of such Employee Benefit Plan
ended prior to the date hereof. AOR has made adequate provision for
reserves to meet contributions that have not been made because they are
not yet due under the terms of any Employee Benefit Plan or related
agreements. Benefits under all Employee Benefit Plans are as
represented and have not been increased subsequent to the date as of
which documents have been provided.
(iv) Tax Qualification. Each Employee Benefit Plan intended to
be qualified under Section 401(a) of the Code has been determined to be
so qualified by the Internal Revenue Service and, nothing has occurred
since the date of the last such determination which resulted or is
likely to result in the revocation of such determination.
(v) Transactions. AOR has not engaged in any transaction with
respect to the Employee Benefit Plans which would subject it to a
material tax, penalty or liability for prohibited transactions under
ERISA or the Code nor have any of its directors, officers or employees
to the extent they or any of them are fiduciaries with respect to such
plans, breached any of their responsibilities or obligations imposed
upon fiduciaries under Title I of ERISA which would result in any
material claim being made under or by or on behalf of any such plans by
any party with standing to make such claim.
(vi) Other Plans. AOR presently does not maintain any Employee
Benefit Plans or any other foreign pension, welfare or retirement
benefit plans other than those listed on Section 3(p) of the Disclosure
Schedule.
(vii) Documents. AOR has delivered or caused to be delivered
to SCN true and complete copies of (i) all Employee Benefit Plans as in
effect, together with all amendments thereto which will become
effective at a later date, as well as the latest IRS determination
letter obtained with respect to any such Employee Benefit Plan
qualified under Section 401 or 501 of the Code, and (ii) the most
recently filed Form 5500 for each Employee Benefit Plan required to
file such form.
(q) Third-Party Relations. AOR has not received any notice that any
material patient, supplier, employee or associated physician intends to cease
doing business with AOR.
(r) Compliance with Applicable Laws. AOR has operated in compliance
with all federal, state, county and municipal laws, constitutions, ordinances,
statutes, rules, regulations and orders applicable thereto ("Applicable Laws").
No item disclosed in Section 3(r) of the Disclosure Schedule could have a
material effect on SCN. Neither AOR nor any physician associated with or
employed by AOR has received payment or any remuneration whatsoever to induce or
encourage the referral of patients or the purchase of goods and/or services as
prohibited under 42 U.S.C. ss. 1320a-7b(b), or otherwise perpetrated any
Medicare or Medicaid fraud or abuse nor has any fraud or abuse been alleged
within the last five (5) years by any government agency.
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(s) Employee Compensation. AOR has paid or discharged or will pay or
discharge or assume all liabilities for compensation and benefits to which all
employees, including physician employees, are entitled through the Closing Date,
including but not limited to all salaries, wages, bonuses, incentive
compensation, payroll taxes, hospitalization and medical expenses, deferred
compensation, and vacation and sick pay, as well as any severance pay becoming
due as a result of the termination of certain of AOR's employees.
(t) Environmental Matters.
(i) AOR is in full compliance with all applicable
Environmental Laws.
(ii) AOR has not authorized or conducted the disposal or
release, or other handling of any Medical Waste, hazardous substance,
hazardous waste, hazardous material, hazardous constituent, toxic
substance, pollutant, contaminant, asbestos, radon, polychlorinated
biphenyls ("PCBs"), petroleum product or waste (including crude oil or
any fraction thereof), natural gas, liquefied gas, synthetic gas,
biohazardous or biomedical material, or other material defined,
regulated controlled or potentially subject to any remediation
requirement under any Environmental Law (collectively "Hazardous
Materials"), on, in, under or affecting or any property owned or leased
by AOR.
(iii) AOR has, and is in compliance with, all licenses,
permits, registrations, and government authorizations necessary to
operate under all applicable Environmental Laws. Section 3(t) of the
Disclosure Schedule lists all such licenses, permits, registrations and
government authorizations required by any Environmental Law.
(iv) AOR has not received any written or oral notice from any
governmental agency or entity or any other Person and there is no
pending or threatened claim, litigation or any administrative agency
proceeding that: (a) alleges a violation of any Environmental Law(s) by
AOR or, with respect to the Purchased Assets or any property owned or
leased by AOR, (b) alleges that AOR is a liable party or potentially
responsible party under the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. ss. 9601, et seq., or any
analogous state law, (c) has resulted or could result in the attachment
of an environmental lien on any of the Purchased Assets or property
owned or leased by AOR or (d) alleges that AOR is liable for any
contamination of the environment, contamination of any property owned
or leased by AOR, damage to natural resources, property damage, or
personal injury based on its activities or the activities of any
predecessor or third parties involving Hazardous Materials, whether
arising under the Environmental Laws, common law principles, or other
legal standards.
(v) With respect to the generation, transportation, treatment,
storage and disposal or other handling of Medical Waste, AOR has
complied with all Medical Waste Laws.
(u) Healthcare Compliance. AOR is participating in or otherwise
authorized to receive reimbursement from Medicare and Medicaid and is a party to
other third-party payor agreements, if any, discussed in Section 3(i) of the
Disclosure Schedule. All necessary certifications and contracts required for
participation in such programs are in full force and effect and have not been
amended or otherwise modified, rescinded, revoked or assigned, and no condition
exists or event has occurred which in itself or with the giving of notice or the
lapse of time or both would result in the suspension, revocation, impairment,
forfeiture or non-renewal of any such third-party payor program. AOR is in
compliance in all material respects with the requirements of all such
third-party payors. AOR, the Physician Owner, and its physician employees do not
have any financial relationship (whether investment interest, compensation
interest, or otherwise) with any entity to which any of the foregoing refer
patients, except for such financial relationships that qualify for exceptions to
state and federal laws restricting physician referrals to entities in which they
have a financial interest.
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(v) Fraud and Abuse. AOR, the Physician Owner, and persons and entities
providing professional services for AOR have not engaged in any activities which
are prohibited under 42 U.S.C. ss. 1320a-7b, or the regulations promulgated
thereunder pursuant to such statutes, or related state or local statutes or
regulations, or which are prohibited by rules of professional conduct, including
the following: (a) knowingly and willfully making or causing to be made a false
statement or representation of a material fact in any application for any
benefit or payment; (b) knowingly and willfully making or causing to be made any
false statement or representation of a material fact for use in determining
rights to any benefit or payment; (c) failing to disclose knowledge by a
claimant of the occurrence of any event affecting the initial or continued right
to any benefit or payment on its own behalf or on behalf of another, with intent
to fraudulently secure such benefit or payment; or (d) knowingly and willfully
soliciting or receiving any remuneration (including any kickback, bribe, or
rebate), directly or indirectly, overtly or covertly, in cash or in kind or
offering to pay or receive such remuneration (1) in return for referring an
individual to a person for the furnishing or arranging for the furnishing or any
item or service for which payment may be made in whole or in part by Medicare or
Medicaid or (2) in return for purchasing, leasing, or ordering or arranging for
or recommending purchasing, leasing or ordering any good, facility, service or
item for which payment may be made in whole or in part by Medicare or Medicaid.
(w) Practice Compliance. AOR is lawfully operated in accordance with
the requirements of all Applicable Laws and has all necessary authorizations for
the conduct of its business, all of which are in full force and effect. There
are no outstanding notices of deficiencies relating to AOR issued by any
governmental authority or third-party payor requiring conformity or compliance
with any applicable law or condition for participation with such governmental
authority or third-party payor, and after reasonable and independent inquiry and
due diligence and investigation, AOR has neither received notice nor has any
Knowledge or reason to believe that such necessary authorizations may be revoked
or not renewed in the Ordinary Course of Business.
(x) Rates and Reimbursement Policies. The jurisdiction in which AOR is
located does not currently impose any restrictions or limitations on rates which
may be charged to private pay patients receiving services provided by AOR. AOR
does not have any rate appeal currently pending before any governmental
authority or any administrator of any third-party payor program. No Applicable
Law which affects rates or reimbursement procedures has been enacted,
promulgated or issued within the eighteen (18) months preceding the date of this
Agreement and no such legal requirement is proposed or currently pending in the
jurisdiction in which AOR is located, which could have a material adverse effect
on AOR or may result in the imposition of additional Medicaid, Medicare,
charity, free care, welfare, or other discounted or government assisted patients
at AOR or require AOR to obtain any necessary authorization which AOR does not
currently possess.
(y) Accounts Receivable. All accounts receivable, unbilled invoices and
other debts due or recorded in the respective records and books of account of
AOR, as being due to AOR, (i) are valid, existing and are collectible within one
hundred eighty (180) days following the date of this Agreement without resort to
legal proceedings or use of collection agencies, (ii) have arisen in the
Ordinary Course of Business, and (iii) none of such accounts receivable or other
debts is or will at the Closing Date be subject to any counterclaim or set-off.
There has been no material adverse change since May 31, 1997 in the amount of
accounts receivable or other debts due AOR, the allowances with respect thereto,
or accounts payable of AOR from that reflected in the most recent balance sheet
previously delivered by AOR to SCN.
(z) Guaranties. AOR is not a guarantor and otherwise is not liable for
any liability or obligation (including indebtedness) of any other Person.
(aa) Powers of Attorney. There are no outstanding powers of attorney
executed by AOR, except as may be contained in financing documents or security
agreements listed in Section 3(i) of the Disclosure Schedule.
(bb) Tangible Assets. AOR owns or leases all land, buildings,
machinery, equipment, and other tangible assets necessary for the conduct of its
business as presently conducted. Each tangible asset is free from defects has
been
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maintained in accordance with normal industry practice and is in good operating
condition and repair (subject to normal wear and tear).
(cc) Full Disclosure. No representation or warranty made by AOR in this
Agreement contains or will contain any untrue statement of a material fact or
omits or will omit to state a material fact necessary to make the statements
contained herein or therein not materially misleading.
4. Representations and Warranties of SCN. SCN represents and warrants
to AOR that the statements contained in this Section 4 are correct and complete
as of the date of this Agreement and will be correct and complete as of the
Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Section 4), except as
set forth in the Disclosure Schedule. The Disclosure Schedule will be arranged
in paragraphs corresponding to the numbered and lettered paragraphs contained in
this Section 4.
(a) Organization. SCN is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Delaware.
(b) Authorization of Transaction. SCN has full power and authority
(including full corporate power and authority) to execute and deliver this
Agreement, to issue the SCN Shares to be issued in connection with this
Agreement and otherwise to perform its obligations hereunder; provided, however,
that SCN cannot consummate the transaction unless and until it receives the
Requisite SCN Board of Directors Approval. Except as set forth in the preceding
sentence, this Agreement constitutes the valid and legally binding obligation of
SCN, enforceable in accordance with its terms and conditions.
(c) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge or other restriction of any government,
governmental agency, professional regulatory organization or court to which SCN
is subject or may become subject as a result of the transaction contemplated by
this Agreement, or any provision of the charter or bylaws of SCN or (ii)
conflict with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, modify,
or cancel, or require any notice under any agreement, contract, lease, license,
instrument or other arrangement to which SCN is a party or by which it is bound
or to which any of its assets is subject. Other than state and federal filings
required by the Securities Act and similar state statutes, SCN does not need to
give any notice to, make any filing with, or obtain any authorization, consent,
or approval of any government or governmental agency in order for the Parties to
consummate the transactions contemplated by this Agreement.
(d) Brokers' Fees. SCN does not have any liability or obligation to pay
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which SCN could become liable or
obligated.
(e) Securities Filings. All reports and statements filed with respect
to SCN pursuant to the Securities Act or the Securities Exchange Act conform to
the requirements of the Securities Act and the Securities Exchange Act and the
rules and regulations promulgated thereunder and did not include at the time of
filing such document any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading.
5. Covenants. The Parties agree as follows with respect to the period
from and after the execution of this Agreement.
(a) General. Each of the Parties will use its or his best efforts to
take all action and to do all things necessary in order to consummate and make
effective the transactions contemplated by this Agreement (including
satisfaction of
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the closing conditions set forth in Section 6 below) to be satisfied by him or
it. This Section 5(a) shall not be construed to obligate any of the Parties to
waive any condition precedent to his or its obligations to perform hereunder.
(b) Notices and Consents. AOR will give any notices to third parties,
and will use its best efforts to obtain any third party consents, necessary or
required to consummate the transaction or that SCN reasonably may request in
connection with the matters referred to in Section 3(i) above.
(c) Regulatory Matters and Approvals. Each of the Parties will give any
notices to, make any filings with, and use its reasonable best efforts to obtain
any authorizations, consents, and approvals of governments and governmental
agencies in connection with the transactions contemplated by this Agreement.
(d) Operation of Business. From the date of this Agreement through the
Closing Date, AOR will not engage in any practice, take any action, or enter
into any transaction outside the Ordinary Course of Business. Without limiting
the generality of the foregoing:
(i) AOR will not authorize or effect any change in its
Articles of Association or bylaws;
(ii) AOR will not grant any options, warrants, or other rights
to purchase or obtain any of its shares or issue, sell, or otherwise
dispose of any of its shares;
(iii) AOR will not declare, set aside, or pay any dividend or
distribution with respect to its shares (whether in cash or in kind),
or redeem, repurchase, or otherwise acquire any of its shares in either
case outside the Ordinary Course of Business without the consent of
SCN, which consent shall not be unreasonably withheld;
(iv) AOR will not issue any note, bond, or other debt security
or create, incur, assume, or guarantee any indebtedness for borrowed
money or capitalized lease obligation outside the Ordinary Course of
Business;
(v) AOR will not impose any Security Interest upon any of its
assets outside the Ordinary Course of Business;
(vi) AOR will not make any capital investment in, make any
loan to, or acquire the securities or assets of any other Person
outside the Ordinary Course of Business;
(vii) AOR will not make any change in employment terms for the
Physician Owner or its managers, officers, and employees outside the
Ordinary Course of Business; and
(viii) AOR will not commit to do any of the foregoing.
(e) Further Acts and Assurances. AOR and the Physician Owner shall, at
any time and from time to time at and after the Closing, upon request of SCN,
take any and all steps necessary to place SCN in possession and operating
control of the Purchased Assets, and will do, execute, acknowledge and deliver,
or will cause to be done, executed, acknowledged and delivered, all such further
acts, deeds, assignments, transfers, conveyances, powers of attorney and
assurances as may be required for the better transferring and confirming to SCN
or its successors or assigns, or for reducing to possession, any or all of the
Purchased Assets.
(f) Full Access. Upon three (3) days prior notice, AOR will permit
representatives of SCN to have full access to all premises, properties,
personnel, books, records (including tax records), contracts, and documents of
or pertaining to AOR during normal business hours. SCN (i) will treat and hold
as such any confidential information it receives from AOR in the course of the
reviews contemplated by this Section 5(f), (ii) will not use any of the
confidential information
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except in connection with this Agreement, and (iii) if this Agreement is
terminated for any reason whatsoever, agrees to return to AOR all tangible
embodiments (and all copies) thereof which are in its possession.
(g) Notice of Developments. Each Party will give prompt written notice
to the other Parties of any material adverse development causing a breach of any
of its own representations and warranties in Section 3 or Section 4 above. No
disclosure by any Party pursuant to this Section 5(g), however, shall be deemed
to amend or supplement the Disclosure Schedule or to prevent or cure any
misrepresentation, breach of warranty, or breach of covenant.
(h) Exclusivity. Until the earlier of (i) July 3, 1997 or (ii) the
Closing Date, AOR will not solicit, initiate, or encourage the submission of any
proposal or offer from any Person relating to the acquisition of all or
substantially all of the capital stock or assets of AOR (including any
acquisition structured as a merger, consolidation, or share exchange). AOR shall
notify SCN immediately if any Person makes any proposal, offer, inquiry, or
contact with respect to any of the foregoing.
(i) Collection of Accounts Receivable. The Physician Owner agrees to
cooperate with SCN in the collection of accounts receivable owned by AOR as of
the Closing Date acquired pursuant to this Agreement. SCN, at its option, shall
have the right to require the collection of said accounts receivable through a
lockbox or bank account sweep arrangement. In connection therewith, the
Physician Owner agrees to execute the necessary documents and follow the
necessary procedures as described in the Service Agreement to accommodate the
collection of the accounts receivable in such manner.
(j) Corporate Authorization. By execution of this Agreement, the
Physician Owner agrees to take any and all steps necessary and will do, execute,
acknowledge and deliver, or will cause to be done, executed, acknowledged and
delivered, all such acts, deeds and assurances required in order to consummate
the transactions contemplated by this Agreement, including voting as directors
of AOR in favor of the transactions contemplated by this Agreement and voting as
an owner of AOR in favor of the transactions contemplated by this Agreement at
any meeting (or in any action by written consent) required by the Texas
Professional Association Act.
(k) Malpractice Insurance. On or before the Closing, all physicians and
employees of AOR shall be covered by medical malpractice insurance and, if
required by SCN, medical malpractice tail insurance to cover prior occurrences
shall be procured by AOR.
(l) Employee Benefit Plans. Prior to the Closing Date, all Employee
Benefit Plans shall be terminated in accordance with, and to the extent required
by, Applicable Law.
6. Conditions to Obligation to Close.
(a) Conditions to Obligation of SCN. The obligation of SCN to
consummate the transactions contemplated by this Agreement is subject to
satisfaction of the following conditions:
(i) AOR shall have procured all of the third party consents
specified in Section 5(b) above;
(ii) the representations and warranties set forth in Section 3
above shall be true and correct in all material respects at and as of
the Closing Date;
(iii) AOR shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(iv) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency
of any federal, state, local, or foreign jurisdiction or before any
arbitrator wherein an
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unfavorable injunction, judgment, order, decree, ruling, or charge
would (A) prevent consummation of any of the transactions contemplated
by this Agreement, (B) cause any of the transactions contemplated by
this Agreement to be rescinded following consummation, or (C) affect
adversely the right of SCN to own the Purchased Assets;
(v) all actions to be taken by AOR in connection with
consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby, have been taken or
delivered to SCN and are satisfactory in form and substance to SCN;
(vi) SCN shall have completed and be satisfied with its due
diligence review;
(vii) On or before the Closing Date, the transactions
contemplated by (i) the Merger Agreement between SCN, Neal C. Small,
M.D., P.A., and Neal C. Small, M.D. dated July 3, 1997, (ii) the Merger
Agreement between SCN, Neal C. Small, M.D. & Associates, P.A. and Neal
C. Small, M.D. dated July 3, 1997, (iii) the Merger Agreement between
SCN, Alexander I. Glogau, M.D., P.A., and Alexander I. Glogau, M.D.
dated July 3, 1997, (iv) the Asset Purchase Agreement between SCN,
Associated Arthroscopy Institute, Inc., and Neal C. Small, M.D. dated
July 3, 1997, and (v) the Asset Purchase Agreement between SCN, Access
Medical Supply, Inc., Alexander Glogau, M.D. and Neal C. Small, M.D.
dated July 3, 1997, shall have been consummated; and
(viii) SCN's Board of Directors shall have approved the
transactions contemplated by this Agreement in their sole and absolute
discretion.
SCN may waive any condition specified in this Section 6(a) if it executes a
writing so stating at or prior to the Closing.
(b) Conditions to Obligation of AOR. The obligation of AOR to
consummate the transactions contemplated by this Agreement is subject to
satisfaction of the following conditions:
(i) the transactions contemplated by this Agreement shall be
approved by AOR's Board of Directors and shall receive the Requisite
AOR Approval;
(ii) the representations and warranties set forth in Section 4
above shall be true and correct in all material respects at and as of
the Closing Date;
(iii) SCN shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing; and
(iv) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency
of any federal, state, local or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction, judgment, order, decree,
ruling or charge would (A) prevent consummation of any of the
transactions contemplated by this Agreement, (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation, or (C) affect adversely the right of SCN to own the
Purchased Assets.
AOR may waive any condition specified in this Section 6(b) if it executes a
writing so stating at or prior to the Closing.
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7. Items to be Delivered at or Prior to Closing.
(a) By the Physician Owner or AOR. The Physician Owner or AOR, as
applicable, shall execute and deliver to SCN, prior to or at the Closing:
(i) Certified resolutions of AOR authorizing the execution of
all documents and the consummation of all transactions contemplated
hereby;
(ii) A Bill of Sale in substantially the form attached hereto
as Exhibit 7(a)(ii);
(iii) A Service Agreement in substantially the form attached
hereto as Exhibit 7(a)(iii);
(iv) A certificate duly executed by the President of AOR that
as of the Closing Date, all representations and warranties of AOR are
true and correct, all covenants and agreements contained in the
Agreement to be performed by AOR have been performed or complied with,
and all conditions to Closing have been satisfied.
(v) An opinion from AOR's counsel in substantially the form
attached hereto as Exhibit 7(a)(v); and
(vi) Such other instruments as may be reasonably requested by
SCN in order to effect to or carry out the intent of this Agreement.
(b) By SCN. SCN shall deliver to AOR at or prior to the Closing:
(i) Certified resolutions of SCN authorizing the execution of
all documents and the consummation of all transactions contemplated
thereby;
(ii) The Purchase Price;
(iii) An opinion from SCN's counsel in substantially the form
attached hereto as Exhibit 7(b)(ii);
(iv) A certificate, duly executed by the President of SCN,
stating as of the Closing Date, all representations and warranties of
SCN are true, all covenants and agreements contained in the Agreement
to be performed by SCN have been performed or complied with and all
conditions to Closing have been satisfied;
(v) a Service Agreement in substantially the form attached
hereto as Exhibit 7(a)(iii); and
(vi) Such other instruments as may be reasonably requested by
the Physician Owner in order to effect to or carry out the intent of
this Agreement.
8. Termination.
(a) Termination of Agreement. Either of the Parties may terminate this
Agreement with the prior authorization of its board of directors (whether before
or after stockholder approval) as provided below:
(i) the Parties may terminate this Agreement by mutual written
consent at any time prior to the Closing Date;
(ii) SCN may terminate this Agreement by giving written notice
to AOR at any time prior to the Closing Date (A) in the event AOR has
breached any representation, warranty, or covenant contained in this
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Agreement in any material respect, SCN has notified AOR of the breach,
and the breach has continued without cure for a period of 30 days after
the notice of breach or (B) if the Closing shall not have occurred on
or before July 31, 1997 by reason of the failure of any condition
precedent under Section 6(a) hereof (unless the failure results
primarily from SCN breaching any representation, warranty, or covenant
contained in this Agreement); or
(iii) AOR may terminate this Agreement by giving written
notice to SCN at any time prior to the Closing Date (A) in the event
SCN has breached any representation, warranty, or covenant contained in
this Agreement in any material respect, AOR has notified SCN of the
breach, and the breach has continued without cure for a period of 30
days after the notice of breach or (B) if the Closing shall not have
occurred on or before July 31, 1997 by reason of the failure of any
condition precedent under Section 6(b) hereof (unless the failure
results primarily from AOR breaching any representation, warranty, or
covenant contained in this Agreement).
(b) Effect of Termination. If any Party terminates this Agreement
pursuant to Section 8(a) above, all rights and obligations of the Parties
hereunder shall terminate without any liability of any Party to any other Party
(except for any liability of any Party then in breach).
9. Indemnification.
(a) Indemnification by AOR and the Physician Owner. AOR and the
Physician Owner agree to and shall jointly and severally defend, indemnify and
hold harmless SCN, its successors and assigns, officers and directors against
any and all losses, liabilities, expenses (including without limitation
reasonable attorney's fees) and damages resulting from or arising out of the
breach, untruth or inaccuracy of any representation, warranty or covenant of AOR
or the Physician Owner set forth in this Agreement. Neither AOR nor the
Physician Owner shall be liable to SCN for any claims against AOR or the
Physician Owner under this Section 9(a) unless and until the aggregate of all
claims against AOR or the Physician Owner exceeds the sum of $25,000.00,
whereupon SCN shall be entitled to recover the full amount of all claims,
including the initial $25,000.00.
(b) Notice to AOR and the Physician Owner; Opportunity to Defend. SCN
agrees to give prompt notice to AOR and the Physician Owner of the assertion of
any claim, or the commencement of any suit, action or proceeding, in respect of
which indemnity may be sought under Section 9(a). AOR and the Physician Owner
may participate in and at their election, or at the request of SCN, assume the
defense of any such suit, action or proceeding at AOR or the Physician Owner's
expense. Neither AOR nor the Physician Owner shall be liable under Section 9(a)
for any settlement effected without their consent of any claim, litigation or
proceeding in respect of which indemnity may be sought under Section 9(a) which
consent shall not be unreasonably withheld.
(c) General Indemnification by SCN. SCN agrees to and shall defend,
indemnify and hold harmless the Physician Owner, his heirs and assigns against
any and all losses, liabilities, expenses (including without limitation
reasonable attorneys' fees) and damages resulting from the breach, untruth or
inaccuracy of any representation, warranty or covenant of SCN set forth in this
Agreement. SCN shall not be liable to the Physician Owner for any claims against
SCN under this Section 9(c) unless and until the aggregate of all claims against
SCN exceeds the sum of $25,000.00, whereupon the Physician Owner shall be
entitled to recover the full amount of all claims, including the initial
$25,000.00.
(d) Notice to SCN; Opportunity to Defend. The Physician Owner agrees to
give prompt notice to SCN of the assertion of any claim, or the commencement of
any suit, action or proceeding in respect of which indemnity may be sought under
Section 9(c). SCN may participate in and at its election, or at the request of
the Physician Owner, assume the defense of any such suit, action or proceeding
at SCN's expense. SCN shall not be liable under Section 9(c) for any settlement
effected without its consent of any claim, litigation or proceeding in respect
of which indemnity may be sought hereunder, which consent shall not be
unreasonably withheld.
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(e) Right of Setoff. In the event of any breach of warranty,
representation, covenant or agreement by AOR or the Physician Owner giving rise
to indemnification to SCN under Section 9(a) hereof, SCN shall be entitled to
offset the amount of damages incurred by it as a result of such breach of
warranty, representation, covenant or agreement against the amounts payable to
the Physician Owner or AOR under the Service Agreement. In the event that SCN
determines that an amount is to be so offset, as a condition precedent to such
right of setoff, SCN shall give the Physician Owner written notice of the amount
of such proposed setoff and the basis therefor within thirty (30) days after the
date on which such amount is finally determined. If SCN shall not have received
written notice from the Physician Owner contesting such setoff within twenty
(20) days of their receipt of such written notice from SCN, the setoff shall be
deemed to have been consented to by the Physician Owner, and SCN shall be
entitled to deduct the entire amount claimed as a setoff from the next
succeeding amounts payable under the Service Agreement. In the event that the
Physician Owner shall object to the proposed setoff by written notice received
by SCN during such twenty (20) day period, the entitlement of SCN to the claimed
setoff shall be determined as set forth in Section 10.4.3 of the Service
Agreement.
10. Miscellaneous.
(a) Survival. The representations and warranties of the Physician
Owner, AOR and SCN contained in this Agreement and the indemnifications
contained herein shall survive the Closing. No claim for indemnification with
respect to any alleged misrepresentation or breach of warranty may be made after
three (3) years following the Closing Date. Any matter to which indemnification
pertains and with respect to which a claim has been asserted or threatened
following the Closing Date shall continue to be subject to the indemnification
under this Agreement until finally terminated, settled, resolved or adjudicated;
and all terms, conditions and stipulations of this Agreement shall likewise
continue to apply.
(b) No Third-Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
(c) Entire Agreement. This Agreement (including the documents referred
to herein) constitutes the entire agreement between the Parties and supersedes
any prior understandings, agreements, or representations by or between the
Parties, written or oral, to the extent they related in any way to the subject
matter hereof.
(d) Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other Party.
(e) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(f) Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(g) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
- 20 -
<PAGE>
If to AOR: Copy to:
Neal C. Small, M.D. Loren Weinstein
4031 West Plano Parkway 4031 West Plano Parkway
Plano, Texas 75093 Plano, Texas 75093
Facsimile: (972) 964-3469 Facsimile: (972) 964-3469
If to SCN: Copy to:
Kerry R. Hicks, President David T. Popwell
Specialty Care Network, Inc. Baker, Donelson, Bearman & Caldwell
44 Union Boulevard, Suite 600 165 Madison Ave, Suite 2100
Lakewood, Colorado 80228 Memphis, Tennessee 38103
Facsimile: (303) 716-1298 Facsimile: (901) 577-2303
Any party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other party
notice in the manner herein set forth.
(h) Governing Law Venue. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of Texas without
giving effect to any choice or conflict of law provision or rule (whether of the
State of Texas or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of Texas. Each of the parties
submits to the jurisdiction of any state or federal court sitting in Denver,
Colorado, in any action or proceeding arising out of or relating to this
Agreement and agrees that all claims in respect of the action or proceeding may
be heard and determined in any such court. Each party also agrees not to bring
any action or proceeding arising out of or relating to this Agreement in any
other court. Each of the parties waives any defense of inconvenient forum to the
maintenance of any action or proceeding so brought and waives any bond, surety,
or other security that might be required of any other party with respect
thereto.
(i) Amendments and Waivers. The Parties may mutually amend any
provision of this Agreement at any time prior to the Effective Time with the
prior authorization of their respective boards of directors; provided, however,
that any amendment effected subsequent to stockholder approval will be subject
to the restrictions contained in the Texas Professional Association Act. No
amendment of any provision of this Agreement shall be valid unless the same
shall be in writing and signed by each of the Parties. No waiver by any party of
any default, misrepresentation, or breach of warranty or covenant hereunder,
whether intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
(j) Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(k) Expenses. Each of the Parties will bear its own costs and expenses
(including legal fees and expenses) incurred in connection with this Agreement
and the transactions contemplated hereby.
- 21 -
<PAGE>
(l) Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context otherwise requires. The
word "including" shall mean including without limitation.
(m) No Referrals Required. The Parties agree that no part of this
Agreement shall be construed to induce or encourage the referral of patients or
the purchase of health care services or supplies. The Parties acknowledge that
there is no requirement under this Agreement or any other agreement between AOR
and SCN that any party refer any patients to any health care provider or
purchase any health care goods or services from any source. Additionally, no
payment under this Agreement is in return for the referral of patients, if any,
or in return for purchasing, leasing or ordering services from SCN or any of
SCN's affiliates. The Parties may refer patients to any company or person
providing services and will make such referrals, if any, consistent with
professional medical judgment and the needs and wishes of the relevant patients.
(n) Incorporation of Exhibits and Schedules. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
* * * * *
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
SCN:
SPECIALTY CARE NETWORK, INC.
By:____________________________________
Title:_________________________________
AOR:
ALLIED HEALTH SERVICES, P.A. D/B/A
ASSOCIATED OCCUPATIONAL
REHABILITATION
By:____________________________________
Title:_________________________________
PHYSICIAN OWNER:
---------------------------------------
NEAL C. SMALL, M.D.
- 22 -
<PAGE>
ASSET PURCHASE AGREEMENT
By and Among
SPECIALTY CARE NETWORK, INC.,
ORTHO-ASSOCIATES, P.A. D/B/A PARK PLACE THERAPEUTIC CENTER,
MARTIN E. HALE, M.D.,
ALAN M. LAZAR, M.D.,
and
MARTIN M. MAY, M.D.
Dated as of July 7, 1997
<PAGE>
TABLE OF CONTENTS
-----------------
(This Table of Contents is not a part of the Agreement and is only for
convenience of reference.)
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Definitions...............................................................................................- 1 -
2. Basic Transaction.........................................................................................- 4 -
(a) Purchase and Sale of Assets.....................................................................- 4 -
(b) Assumption of Liabilities.......................................................................- 4 -
(c) Purchase Price..................................................................................- 5 -
(d) The Closing.....................................................................................- 5 -
(e) Deliveries at Closing...........................................................................- 5 -
(f) Proration.......................................................................................- 5 -
(g) Taxes and Expenses..............................................................................- 5 -
(h) Allocation......................................................................................- 5 -
(i) Employees.......................................................................................- 5 -
3. Representations and Warranties of PPTC and the Physician Owners...........................................- 6 -
(a) Organization, Qualification, and Power..........................................................- 6 -
(b) Ownership Interest of PPTC......................................................................- 6 -
(c) Authorization of Transaction....................................................................- 6 -
(d) Noncontravention................................................................................- 6 -
(e) Subsidiaries and Investments....................................................................- 7 -
(f) Financial Statements............................................................................- 7 -
(g) Undisclosed Liabilities.........................................................................- 7 -
(h) Brokers' Fees...................................................................................- 7 -
(i) Material Contracts..............................................................................- 7 -
(j) Insurance; Malpractice..........................................................................- 8 -
(k) No Changes Prior to Closing Date................................................................- 8 -
(l) Title; Condition................................................................................- 9 -
(m) Litigation......................................................................................- 9 -
(n) Permits and Licenses............................................................................- 9 -
(o) Tax Matters.....................................................................................- 9 -
(p) Employee Benefit Plans..........................................................................- 9 -
(q) Third-Party Relations..........................................................................- 11 -
(r) Compliance with Applicable Laws................................................................- 11 -
(s) Employee Compensation..........................................................................- 11 -
(t) Environmental Matters..........................................................................- 11 -
(u) Healthcare Compliance..........................................................................- 12 -
(v) Fraud and Abuse................................................................................- 12 -
(w) Practice Compliance............................................................................- 12 -
(x) Rates and Reimbursement Policies...............................................................- 12 -
(y) [intentionally omitted]........................................................................- 12 -
(z) Guaranties.....................................................................................- 12 -
(aa) Powers of Attorney............................................................................- 13 -
(bb) Tangible Assets...............................................................................- 13 -
</TABLE>
- ii -
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
(cc) SCN Warrant; Investment Intent................................................................- 13 -
4. Representations and Warranties of SCN....................................................................- 14 -
(a) Organization...................................................................................- 14 -
(b) Capitalization.................................................................................- 14 -
(c) Authorization of Transaction...................................................................- 14 -
(d) Noncontravention...............................................................................- 14 -
(e) Brokers' Fees..................................................................................- 14 -
(f) Securities Filings.............................................................................- 14 -
5. Covenants................................................................................................- 15 -
(a) General........................................................................................- 15 -
(b) Notices and Consents...........................................................................- 15 -
(c) Regulatory Matters and Approvals...............................................................- 15 -
(d) Operation of Business..........................................................................- 15 -
(e) Further Acts and Assurances....................................................................- 15 -
(f) Full Access....................................................................................- 15 -
(g) Notice of Developments.........................................................................- 15 -
(h) Exclusivity....................................................................................- 15 -
(i) [intentionally omitted]........................................................................- 16 -
(j) Corporate Authorization........................................................................- 16 -
(i) Securities Law Compliance......................................................................- 16 -
(k) Malpractice Insurance..........................................................................- 16 -
(l) Employee Benefit Plans.........................................................................- 16 -
6. Conditions to Obligation to Close........................................................................- 16 -
(a) Conditions to Obligation of SCN................................................................- 16 -
(b) Conditions to Obligation of PPTC...............................................................- 17 -
7. Items to be Delivered at or Prior to Closing.............................................................- 17 -
(a) By the Physician Owners or PPTC................................................................- 17 -
(b) By SCN.........................................................................................- 18 -
8. Termination..............................................................................................- 18 -
(a) Termination of Agreement.......................................................................- 18 -
(b) Effect of Termination..........................................................................- 19 -
9. Indemnification..........................................................................................- 19 -
(a) Indemnification by PPTC and the Physician Owners...............................................- 19 -
(b) Notice to PPTC and the Physician Owners; Opportunity to Defend.................................- 19 -
(c) General Indemnification by SCN.................................................................- 19 -
(d) Notice to SCN; Opportunity to Defend...........................................................- 19 -
(e) Right of Setoff................................................................................- 19 -
10. Miscellaneous...........................................................................................- 20 -
</TABLE>
- iii -
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
(a) Survival.......................................................................................- 20 -
(b) No Third-Party Beneficiaries...................................................................- 20 -
(c) Entire Agreement...............................................................................- 20 -
(d) Succession and Assignment......................................................................- 20 -
(e) Counterparts...................................................................................- 20 -
(f) Headings.......................................................................................- 20 -
(g) Notices........................................................................................- 20 -
(h) Governing Law Venue............................................................................- 21 -
(i) Amendments and Waivers.........................................................................- 21 -
(j) Severability...................................................................................- 21 -
(k) Expenses.......................................................................................- 21 -
(l) Construction...................................................................................- 22 -
(m) No Referrals Required..........................................................................- 22 -
(n) Incorporation of Exhibits and Schedules........................................................- 22 -
SCHEDULE 1(a) REAL PROPERTY................................................................Schedule 1(a)-1
SCHEDULE 1(b) FURNITURE, FIXTURES & EQUIPMENT..............................................Schedule 1(b)-1
SCHEDULE 1(d) LEASES OF PERSONAL PROPERTY..................................................Schedule 1(d)-1
SCHEDULE 1(f) ASSIGNED CONTRACTS...........................................................Schedule 1(f)-1
SCHEDULE 2(b) ASSUMED LIABILITIES..........................................................Schedule 2(b)-1
EXHIBIT 2(g) PURCHASE PRICE ALLOCATION AGREEMENT............................................Exhibit 2(g)-1
EXHIBIT 7(a)(ii) BILL OF SALE...........................................................Exhibit 7(a)(ii)-1
EXHIBIT 7(a)(iii) SERVICE AGREEMENT....................................................Exhibit 7(a)(iii)-1
EXHIBIT 7(a)(iv) ASSIGNMENT AND ASSUMPTION AGREEMENT....................................Exhibit 7(a)(iv)-1
EXHIBIT 7(a)(v) LEASE ASSIGNMENT AND ASSUMPTION AGREEMENTS...............................Exhibit 7(a)(v)-1
EXHIBIT 7(a)(vi) REGISTRATION RIGHTS AGREEMENT..........................................Exhibit 7(a)(vi)-1
EXHIBIT 7(a)(viii) OPINION OF RUDEN, MCCLOSKY, SMITH, SCHUSTER & RUSSELL, P.A.........Exhibit 7(a)(viii)-1
EXHIBIT 7(b)(ii) SCN WARRANT............................................................Exhibit 7(b)(ii)-1
EXHIBIT 7(b)(ix) OPINION OF BAKER, DONELSON, BEARMAN & CALDWELL, P.C....................Exhibit 7(b)(ix)-1
</TABLE>
- iv -
<PAGE>
ASSET PURCHASE AGREEMENT
------------------------
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is entered into as of
July 7, 1997, by and among ORTHO-ASSOCIATES, P.A. D/B/A PARK PLACE THERAPEUTIC
CENTER, a Florida professional service corporation ("PPTC"), and MARTIN E. HALE,
M.D., ALAN M. LAZAR, M.D., and MARTIN M. MAY, M.D., all residents of the State
of Florida (collectively the "Physician Owners") on the one hand and SPECIALTY
CARE NETWORK, INC., a Delaware corporation ("SCN") on the other hand. SCN, PPTC
and the Physician Owners are referred to collectively herein as the "Parties."
W I T N E S S E T H:
WHEREAS, PPTC is a Florida professional association which owns the
assets which are used by and/or result from the Physician Owners' practice of
medicine;
WHEREAS, the Physician Owners are medical doctors practicing medicine
in the State of Florida;
WHEREAS, the Parties anticipate that the transaction contemplated by
this Agreement will further certain of their business objectives; and
WHEREAS, the Parties desire to set forth in writing the terms and
conditions under which said transaction will be consummated.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the Parties, it is agreed as
follows:
1. Definitions.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Agreement" has the meaning set forth in the preface above.
"Applicable Laws" has the meaning set forth in Section 3(r) below.
"Assignment and Assumption Agreement" means that certain Assignment and
Assumption Agreement to be executed by the Parties at Closing, the form of which
is attached hereto as Exhibit 7(a)(iv).
"Assumed Liabilities" has the meaning set forth in Section 2(b) below.
"FPCA" means the Professional Corporation and Limited Liability Company
Act of the State of Florida, as amended.
"Closing Date" has the meaning set forth in Section 2(d) below.
"PPTC" has the meaning set forth in the preface above.
- 1 -
<PAGE>
"Closing" has the meaning set forth in Section 2(d) below.
"Code" means the Internal Revenue Code of 1986, as amended.
"Delaware General Corporation Law" means the General Corporation Law of
the State of Delaware, as amended.
"Disclosure Schedule" has the meaning set forth in Section 3 below.
"Employee Benefit Plans" has the meaning set forth in Section 3(p)(i)
below.
"Environmental Laws" means all federal, state, and local laws, rules,
regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and
charges thereunder and other governmental requirements relating to pollution,
control of chemicals, storage and handling of petroleum products, management of
waste (including biohazardous or biomedical waste), discharges of materials into
the environment, health, safety, natural resources, and the environment,
including laws relating to emissions, discharges, releases, or threatened
releases of pollutants, contaminants, or chemical, industrial, hazardous, or
toxic materials or wastes into ambient air, surface water, ground water, or
lands or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling of pollutants,
contaminants, or chemical, industrial, hazardous, or toxic materials or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Excluded Assets" means (a) the Articles of Incorporation,
qualifications to conduct business as a foreign professional association,
arrangements with registered agents relating to foreign qualifications, taxpayer
and other identification numbers, seals, minute books, transfer books, and other
documents relating to the organization, maintenance, and existence of PPTC as a
professional association, (b) employment or noncompete agreements between PPTC
and those licensed medical doctors under contract with PPTC to provide medical
services to PPTC patients, (c) all patient records and patient lists, (d) all
insurance policies of PPTC and all claims arising thereunder and all prepaid
expenses on malpractice insurance premiums, (e) the inventories, cash, and
accounts receivable disposed of, canceled, expanded or collected, as the case
may be, by PPTC after the date hereof and prior to the Closing in the Ordinary
Course of Business, (f) personal property of individual Physician Owners and
other employees which is not included on the financial statements of PPTC, (g)
PPTC's cash on hand as of the Closing Date, (h) PPTC's third party payor
agreements, (i) all drugs owned by PPTC, (j) any rights of PPTC under this
Agreement or any related document or under any other agreement between PPTC on
the one hand and SCN on the other hand entered into on or after the date of this
Agreement, (k) all accounts receivable, claims for payments due, unpaid
accounts, notes and sums due or owed to PPTC, and (l) any other property or
asset not included as a Purchased Asset.
"GAAP" means United States generally accepted accounting principles as
in effect from time to time.
"Hazardous Materials" has the meaning set forth in Section 3(t) below.
"IRS" means the Internal Revenue Service.
"Knight Employment Agreement" means that certain Employment Agreement
between SCN and Jay Knight dated the Closing Date providing for the continued
employment of Jay Knight by SCN on the terms and subject to the conditions
stated therein.
"Knowledge" means actual knowledge.
- 2 -
<PAGE>
"Lease Assignment and Assumption Agreements" means those three (3)
Lease Assignment, Assumption and Release Agreements to be executed and delivered
by SCN and the other parties thereto at Closing, the forms of which are attached
hereto as composite Exhibit 7(a)(v).
"May Stock Redemption Agreement" means the Agreement contemplated in
Section 6(b)(v) hereof.
"Medical Waste" includes, but is not limited to, pathological waste,
blood, sharps, wastes from surgery or autopsy, dialysis waste, including
contaminated disposable equipment and supplies, cultures and stock of infectious
agents and associated biological agents, contaminated animals, isolation wastes,
contaminated equipment, laboratory waste, various other biological waste and
discarded materials contaminated with or exposed to blood, excretion or
secretion from human beings or animals, and any substance, pollutant, material
or contaminant listed or regulated under the Medical Waste Tracking Act of 1988,
42 U.S.C. ss.ss. 6992, et seq.
"Medical Waste Law" means the Medical Waste Tracking Act of 1988, as
amended, the U.S. Public Vessel Medical Waste Anti-Dumping Act of 1988, 33
U.S.C.A. ss.ss. 2501, et seq., the Marine Protection, Research and Sanctuaries
Act of 1972, 33 U.S.C.A. ss.ss. 1401, et seq., the Occupational Safety and
Health Act, 29 U.S.C.A. ss.ss. 651, et seq., the United States Department of
Health and Human Services, National Institute for Occupational Self-Safety and
Health Infectious Waste Disposal Guidelines, Publication No. 88-119, all
regulations and orders issued pursuant to any of the foregoing, and any other
federal, state, regional, county, municipal or other local laws, regulations and
ordinances insofar as they purport to regulate Medical Waste or impose
requirements relating to Medical Waste.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice.
"Parties" has the meaning set forth in the preface above.
"Person" means an individual, a partnership, a limited liability
company, a corporation, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization, or a governmental entity (or any
department, agency, or political subdivision thereof).
"PBGC" has the meaning set forth in Section 3(p)(ii) below.
"Physician Owners" has the meaning set forth in the preface above.
"Purchase Price" has the meaning set forth in Section 2(a) below.
"Purchased Assets" means all of PPTC's right, title, and interest in
and to the following assets of PPTC owned as of the Closing Date:
(a) any and all leaseholds and subleaseholds in real property,
improvements, fixtures, and fittings thereon, and easements, rights-of-way, and
other appurtenances and hereditaments thereto (such as appurtenant rights in and
to public streets), including the assets described on Schedule 1(a) attached
hereto (the "Real Property"),
(b) any and all furniture, fixtures, equipment and other capital assets
of PPTC, including items described on Schedule 1(b) attached hereto,
(c) any and all inventory of supplies, janitorial and office supplies,
and other disposables and consumables on hand at the Closing Date (excluding
drugs),
- 3 -
<PAGE>
(d) any and all leases or subleases of equipment or other personal
property, and rights thereunder as described on Schedule 1(d) attached hereto,
(e) any and all Intellectual Property, goodwill associated therewith,
licenses and sublicenses granted and obtained with respect thereto, and rights
thereunder, remedies against infringements thereof, and rights to protection of
interests therein under the laws of all jurisdictions,
(f) any and all agreements, contracts, indentures, mortgages,
instruments, Security Interests, guaranties, other similar arrangements, and
rights thereunder described on Schedule 1(f) ("Assigned Contracts"),
The term "Purchased Assets" shall not include any specific item included within
the definition of Excluded Assets below.
"Real Property" has the meaning set forth within the definition of
Purchased Assets in this Section 1.
"Registration Rights Agreement" means that certain letter agreement
among the Parties attached hereto as Exhibit 7(a)(vi).
"Requisite PPTC Approval" means the affirmative vote of the holders of
the requisite percentage of the shares of PPTC which is required by the Florida
Professional Corporation Act to approve the transactions contemplated by this
Agreement.
"Requisite SCN Board of Directors Approval" means the affirmative vote
of the holders of a majority of the SCN Board of Directors in favor of this
Agreement.
"SCN" has the meaning set forth in the preface above.
"SCN Warrants" shall mean those three (3) certain Warrants to Purchase
Common Stock of the Company, in denominations of 272,340 shares, 136,170 shares
and 136,171 shares, respectively, exercisable at any time on or before one year,
two years, and three years, respectively, from the Closing, at an exercise price
of $14 11/16, in substantially the form attached hereto as Exhibit 7(a)(vii).
"SCN Share" means any share of the common stock, $.001 par value per
share, of SCN.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance,
charge or other security interest other than (a) mechanic's, materialmen's or
similar lien, (b) liens for taxes not yet due and payable or for taxes that the
taxpayer is contesting in good faith through appropriate proceedings, (c)
purchase money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.
"Service Agreement" means that certain Service Agreement dated as of
the Closing Date by and among SCN, PPTC, and the Physician Owners, in
substantially the form attached hereto as Exhibit 7(a)(iii).
- 4 -
<PAGE>
"Subsidiary" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) owns a majority of the common stock or has the
power to vote or direct the voting of sufficient securities to elect a majority
of the directors.
2. Basic Transaction.
(a) Purchase and Sale of Assets. At the Closing, on and subject to the
terms and conditions of this Agreement, PPTC agrees to transfer, sell, convey
and deliver to SCN, and SCN agrees to purchase, all of the Purchased Assets for
a price equal to Sixteen Million Dollars ($16,000,000.00) (the "Purchase Price")
plus the SCN Warrants, to be paid or satisfied as set forth in Section 2(c).
(b) Assumption of Liabilities. Except as otherwise provided herein, SCN
shall assume at the Closing Date, and shall perform or discharge on or after the
Closing Date, only the contracts, leases, commitments, obligations and
liabilities of PPTC which are listed on Schedule 2(b) attached hereto (the
"Assumed Liabilities"), and shall assume no other liabilities of PPTC.
Notwithstanding any contrary provision contained herein, SCN shall not be deemed
to have assumed, nor shall SCN assume: (i) any liability which may be incurred
by reason of any breach of or default under such contracts, leases, commitments
or obligations which occurred prior to the Closing Date; (ii) any liability for
any employee benefits payable to employees of PPTC, including, but not limited
to, liabilities arising under any Employee Benefit Plan of PPTC; (iii) any
liability based upon or arising out of a violation of any laws by PPTC,
including, without limiting the generality of the foregoing, any such liability
which may arise in connection with agreements, contracts, commitments or
provision of services by PPTC or any Physician Owner; (iv) any liability based
upon or arising out of any tortious or wrongful actions of PPTC or any Physician
Owner, or (v) any liability for the payment of any taxes imposed by law on PPTC
arising from any activities of PPTC prior to the Closing Date or by reason of
the transactions contemplated by this Agreement.
(c) Purchase Price. SCN shall pay or satisfy the Purchase Price at the
Closing by delivering to PPTC the SCN Warrants (together with the duly executed
Registration Rights Agreement) and Sixteen Million Dollars ($16,000,000.00) in
cash, payable by wire transfer or delivery of immediately available funds,
representing the full amount of the Purchase Price.
(d) The Closing. The closing of the transaction (the "Closing") shall
take place at the offices of Ruden, McClosky, Smith, Schuster & Russell, P.A.,
200 East Broward Boulevard, Fort Lauderdale, Florida 33302, commencing at 9:00
a.m. local time on the second business day following the satisfaction or waiver
of all conditions to the obligations of the Parties to consummate the
transactions contemplated hereby or such other date as the Parties may mutually
determine (the "Closing Date"). Time is of the essence for this Agreement.
(e) Deliveries at Closing. At the Closing, (i) SCN will deliver to PPTC
the various certificates, instruments, and documents referred to in Section 7(b)
below; (ii) PPTC will deliver to SCN the various certificates, instruments, and
documents referred to in Section 7(a) below.
(f) Proration. The following prorations among the Parties shall be made
as of the Closing Date, with PPTC remaining liable to the extent such items
relate to any time period up to the Closing Date and SCN being liable (solely
pursuant to the terms of the Service Agreement) to the extent such items relate
to periods on and after the Closing Date:
(i) Any ad valorem taxes, including, without limitation,
personal property taxes and assessments, and other taxes, if any, on or
with respect to the Purchased Assets,
- 5 -
<PAGE>
(ii) Rents, additional rents, taxes and other items paid or
payable by PPTC under any lease, license, permit, contract or any other
agreement or arrangement to be assigned to or assumed by SCN, and
(iii) The amount of rents, taxes, and charges for sewer,
water, fuel, telephone, electricity, and other utilities; provided,
that if practicable, a meter reading shall be take on the Closing Date
and the respective obligations of the Parties determined in accordance
with such readings.
To the extent possible, the net amount of all such prorations will be
settled in cash at the Closing. If the actual expense of any of the above items
for the billing period in which the Closing Date falls is not known at the
Closing, the proration shall be made based on the expense incurred in the
previous billing cycle, for expenses billed less often than quarterly, and on
the average expense incurred in the preceding three (3) billing periods, for
expense bill quarterly or more often.
(g) Taxes and Expenses. PPTC shall be responsible for any business,
occupation, withholding or similar tax or taxes of any kind related to PPTC's
business for any period prior to the Closing Date. All applicable sales, use and
tangible taxes, documentary stamp taxes, filing and recording costs and other
transfer taxes, costs and fees relating to the transfer of title to the
Purchased Assets, and the consummation of the transactions described herein,
shall be paid by PPTC.
(h) Allocation. The Parties agree to allocate the Purchase Price among
the Purchased Assets (and all other capitalizable costs) among the Purchased
Assets for all purposes (including financial accounting and tax purposes) in
accordance with the Purchase Price Allocation Agreement attached hereto as
Exhibit 2(g).
(i) Employees. As of the Closing Date, PPTC shall terminate all the
employees of PPTC other than Physician Employees and Technical Employees (both
as defined in the Service Agreement), and SCN or an Affiliate of SCN shall hire
all such terminated employees at the compensation levels existing as of the
Closing Date. Notwithstanding any other provision herein or in any other
document or instrument to the contrary, each former PPTC employee hired by SCN
shall be given credit, to the extent lawful, for all years of service to PPTC
prior to the Closing for the purpose of determining eligibility for benefits as
employees of SCN. PPTC shall retain responsibility under any and all employment
agreements with respect to terminated employees. PPTC hereby covenants and
agrees that it will take whatever steps are necessary to pay or fund completely
or reserve completely for any accrued benefits, where applicable, or vested
accrued benefits for which PPTC or any entity might have any liability
whatsoever arising from any salary, wage, benefit, bonus, sick leave, insurance,
employment tax or similar liability of PPTC to any employee or other person or
entity (including, without limitation, any Employee Benefit Plan of PPTC and any
liability under employment contracts with PPTC) allocable to services performed
prior to the Closing Date. PPTC acknowledges that the purpose and intent of this
covenant is to assure that SCN shall have no liability whatsoever at any time in
the future with respect to any of PPTC's employees or similar persons or
entities, including, without limitation, any Employee Benefit Plan of PPTC.
3. Representations and Warranties of PPTC and the Physician Owners.
PPTC and the Physician Owners, jointly and severally, represent and warrant to
SCN that the statements contained in this Section 3 are correct as of the date
of this Agreement and will be correct as of the Closing Date (as though made
then and as though the Closing Date were substituted for the date of this
Agreement throughout this Section 3 except where the context otherwise
requires), except as set forth in the disclosure schedule (the "Disclosure
Schedule"). The Disclosure Schedule will be arranged in paragraphs corresponding
to the numbered and lettered paragraphs contained in this Section 3 and Section
4, and will be updated as of the Closing Date.
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(a) Organization, Qualification, and Power. PPTC is a professional
service corporation duly organized, validly existing, and in good standing under
the laws of the State of Florida. PPTC is duly authorized to conduct business
and is in good standing under the laws of each jurisdiction in which the
character or location of the properties owned or the business conducted by PPTC
makes such qualification necessary. PPTC has the full power and authority to
carry on the business in which it is engaged and to own and use the properties
owned, leased and used by it.
(b) Ownership Interest of PPTC. PPTC is owned in the manner set forth
in Section 3(b) of the Disclosure Schedule. Except as set forth in Section 3(b)
of the Disclosure Schedule, there are no other shares of any form authorized or
outstanding. There are no outstanding or authorized options, warrants, purchase
rights, subscription rights, conversion rights, exchange rights, or other
contracts or commitments that could require PPTC to issue, sell, or otherwise
cause to become outstanding any of its capital stock. There are no outstanding
or authorized stock appreciation, phantom stock, profit participation, or
similar rights with respect to PPTC. Notwithstanding anything to the contrary in
this Agreement, SCN acknowledges that PPTC and the Physician Owners, as of the
Closing, shall have entered into the May Stock Redemption Agreement.
(c) Authorization of Transaction. PPTC has the full power and authority
to execute and deliver this Agreement and to perform its obligations hereunder.
This Agreement constitutes the valid and legally binding obligation of PPTC and
the Physician Owners, enforceable in accordance with its terms and conditions,
subject to applicable bankruptcy reorganization, insolvency, fraudulent
conveyance, moratorium or other laws of general application affecting the
enforcement of creditor's rights.
(d) Noncontravention. To the Knowledge of PPTC and the Physician
Owners, neither the execution and the delivery of this Agreement, nor the
consummation of the transactions contemplated hereby, (i) violates any
constitution, statute, regulation, rule, injunction, judgment, order, decree,
ruling, charge or other restriction of any government, governmental agency,
professional regulatory organization or court to which PPTC is subject or any
provision of the Articles of Incorporation or bylaws of PPTC or (ii) conflicts
with, results in a breach of, constitutes a default under, results in the
acceleration of, creates in any party the right to accelerate, terminate,
modify, or cancel, or require any notice under any material agreement, contract,
lease, license, instrument or other arrangement to which PPTC is a party or by
which it is bound or to which any of its assets is subject (or result in the
imposition of any Security Interest upon any of its assets); provided, however,
notwithstanding anything to the contrary in this Agreement, no representation or
warranty is made as to the assignability of the Assigned Contracts or to the
effect of the failure to obtain any consent required for the assignment thereof.
To the Knowledge of PPTC and the Physician Owners, PPTC is not required to give
any notice to, make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order for the Parties to
consummate the transactions contemplated by this Agreement.
(e) Subsidiaries and Investments. PPTC does not own, directly or
indirectly, any capital stock or other equity ownership or proprietary interest
in any other corporation, partnership, association, limited liability company,
trust, joint venture or other entity, except passive investments in
readily-marketable securities.
(f) Financial Statements. PPTC has furnished SCN with audited financial
statements dated December 31, 1996 and 1995, including the notes thereto, which
were prepared on a basis consistent with past accounting practices of PPTC and,
except as disclosed in the Disclosure Schedule, fairly present the financial
condition of PPTC at the dates thereof, and the results of its operations for
the periods then ended, in accordance with generally accepted accounting
principles. PPTC has also furnished SCN with a Statement of Assets, Liabilities
and Equity - Income Tax Basis as of February 28, 1997, and a Statement of
Revenue and Expenses - Income Tax Basis, for the two months then ended. Except
as set forth on the Disclosure Schedule, such financial statements were compiled
from the accounting records of PPTC and have not been audited, but are
mathematically correct. Except as set forth on the Disclosure Schedule, the
balance sheets of
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PPTC delivered by PPTC to SCN reflect all claims against and all debts and
liabilities of PPTC fixed or contingent, as of the dates thereof.
(g) Undisclosed Liabilities. To the Knowledge of PPTC and Physician
Owners, PPTC has no uninsured material liability (whether known or unknown,
asserted or unasserted, absolute or contingent, accrued or unaccrued, liquidated
or unliquidated, and whether due or to become due), including any liability for
taxes that would have a material adverse affect on the Purchased Assets, except
for (i) liabilities set forth on the face of the balance sheet dated as of
December 31, 1996 (ii) liabilities which have arisen after December 31, 1996 in
the Ordinary Course of Business (none of which results from, arises out of,
relates to, is in the nature of, or was caused by any breach of contract, breach
of warranty, tort, infringement, or violation of law).
(h) Brokers' Fees. PPTC does not have any liability or obligation to
pay any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement, except PPTC has engaged Practice
Solutions of Boca Raton, Florida, which is entitled to a fee in connection with
the transaction contemplated hereby. SCN hereby agrees to pay such fee, not to
exceed $500,000, when due (and assume any obligation of PPTC [up to such amount]
thereafter) which fee shall be an Assumed Liability.
(i) Material Contracts. Section 3(i) of the Disclosure Schedule lists
the following material contracts and other material agreements to which PPTC is
a party (an agreement described below is required to be listed in Section 3(i)
of the Disclosure Schedule only to the extent it is material):
(i) any agreement (or group of related agreements) for the
lease of real or personal property to or from any Person;
(ii) any agreement (or group of related agreements) for the
purchase or sale of supplies, products, or other personal property or
for the furnishing or receipt of services;
(iii) any agreement concerning a partnership, limited
liability company or joint venture;
(iv) any agreement (or group of related agreements) under
which PPTC has created, incurred, assumed, or guaranteed any
indebtedness for borrowed money, or any capitalized lease obligation
pursuant to which it has imposed a Security Interest in respect of any
of its assets, tangible or intangible;
(v) any agreement concerning confidentiality or
noncompetition;
(vi) any profit sharing, option, deferred compensation,
severance, or other plan or arrangement for the benefit of PPTC's
current or former owners, directors, partners, managers, officers,
and/or employees;
(vii) any agreement for the employment of any individual on a
full-time, part-time, consulting, or other basis providing annual
compensation in excess of $25,000 or providing severance benefits;
(viii) any agreement pursuant to which PPTC has advanced or
loaned any amount to any of its shareholders, directors, officers, and
employees;
(ix) any agreement pursuant to which the consequences of a
default or termination, to the Knowledge of PPTC and Physician Owners
could have a material adverse effect on the business, financial
condition, operations, results of operations, or future prospects of
PPTC; or
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(x) any other agreement (or group of related agreements)
outside the ordinary course of PPTC's business or operations the
performance of which involves consideration in excess of $15,000.
PPTC has delivered or given SCN access to a correct and complete copy of each
written agreement listed in Section 3(i) of the Disclosure Schedule (as amended
through the Closing Date) and a written summary setting forth the terms and
conditions of each oral agreement referred to in Section 3(i) of the Disclosure
Schedule. With respect to each such agreement: (A) to the Knowledge of PPTC and
the Physician Owners, no party is in breach or default, and no event has
occurred which with notice or lapse of time would constitute a breach or
default, or permit termination, modification, or acceleration, under the
agreement; and (B) to the Knowledge of PPTC and the Physician Owners, no party
has repudiated any provision of the agreement.
(j) Insurance; Malpractice. Section 3(j) of the Disclosure Schedule
contains a list and brief description of all policies or binders of fire,
liability, product liability, workers compensation, health and other forms of
insurance policies or binders currently in force insuring against risks which
will remain in full force and effect at least through the Closing Date. Section
3(j) of the Disclosure Schedule contains a description of all current
malpractice liability insurance policies of the Physician Owners and PPTC and
all predecessor policies of PPTC in effect since February 1, 1994. Neither PPTC
nor, to the Knowledge of PPTC or the Physician Owners, the Physician Owners, or
present PPTC's professional employees have, in the last seven (7) years, filed a
written application for any insurance coverage relating to PPTC's business or
property which has been denied by an insurance agency or carrier. insured for
professional malpractice claims during the same period. Section 3(j) of the
Disclosure Schedule also sets forth a list of all claims for any insured loss in
excess of Five Thousand Dollars ($5,000.00) per occurrence filed by or against
PPTC or, to the Knowledge of PPTC or the Physician Owners, PPTC's present
professional employees or the Physician Owners, during the three (3) year period
immediately preceding the date hereof, including workers compensation, general
liability, environmental liability and professional malpractice liability
claims. None of PPTC, or, to the Knowledge of PPTC or the Physician Owners, the
Physician Owners, PPTC's present professional employees, is in material default
with respect to any provision contained in any policy listed in Section 3(j) of
the Disclosure Schedule or has failed to give any notice or present any claim
under any such policy in due and timely fashion.
(k) No Changes Prior to Closing Date. During the period from December
31, 1996 through the date hereof, PPTC has not (i) incurred any material
liability or obligation of any nature (whether known or unknown, asserted or
unasserted, absolute or contingent, accrued or unaccrued, liquidated or
unliquidated and whether due or to become due), except in the Ordinary Course of
Business, except for accrual of bonuses for certain employees, (ii) written off
as uncollectible any notes or accounts receivable, except write-offs in the
Ordinary Course of Business charged to applicable reserves, none of which
individually or in the aggregate is material to PPTC, (iii) conducted its
business in such a manner so as to materially increase its accounts payable or
so as to materially decrease its accounts receivable, (iv) granted any increase
in the rate of wages, salaries, bonuses, or other remunerations of any employee,
except in the Ordinary Course of Business, except for accrual of bonuses for
certain employees, (v) canceled or waived any claims or rights of substantial
value, (vi) made any material change in any method of accounting, (vii)
otherwise conducted its business or entered into any material transaction,
except in the usual and ordinary manner and in the Ordinary Course of Business,
(viii) agreed, whether or not in writing, to do any of the foregoing, or (ix)
disposed of its assets other than in the Ordinary Course of Business.
(l) Title; Condition. PPTC has, or will have at the Closing Date, good
and marketable title to all of the Purchased Assets subject to no mortgage,
pledge, lien, lease, conditional sales agreement, option, right of first refusal
or any other encumbrance or charge, including taxes, except for (i) liens with
respect to taxes not yet due and payable and (ii) statutory landlord liens. PPTC
agrees to remove all security interests reflected on any search of public
records, if any, prior to the Closing Date and to remove any other security
interest filed with respect to the Purchased Assets between the date of such
search of public records and the Closing Date.
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(m) Litigation. Except as disclosed in Section 3(m) of the Disclosure
Schedule, there is no suit, action, proceeding at law or in equity, arbitration,
administrative proceeding or other proceeding or investigation by any
governmental entity pending, or, to the Knowledge of PPTC or the Physician
Owners, threatened against, or affecting PPTC or any of the Purchased Assets, or
to the Knowledge of PPTC or the Physician Owners, any physician or other health
care professional engaged or employed by PPTC, and to the Knowledge of PPTC or
the Physician Owners, there is no basis for any of the foregoing. None of the
actions, suits, proceedings, hearings, and investigations set forth in Section
3(m) of the Disclosure Schedule could reasonably be anticipated to result in any
material adverse change in the operations, results of operations, or future
prospects of the business assets to be operated by SCN, or a material adverse
effect on the Service Agreement, after the Closing.
(n) Permits and Licenses. To the Knowledge of PPTC and the Physician
Owners, PPTC and all physicians and other health care professionals engaged or
employed by PPTC have all permits and licenses required by all applicable laws;
have made all regulatory filings necessary for the conduct of PPTC's business;
and are not in violation of any of said permitting or licensing requirements,
except for any violations that would not have a material adverse effect on the
Purchased Assets or the business of PPTC.
(o) Tax Matters. All federal, state and other tax returns of PPTC
required by law to be filed have been timely filed, and PPTC has paid or
adequately provided for all taxes (including taxes on properties, income,
franchises, licenses, sales and payrolls) which have become due pursuant to such
returns or pursuant to any assessment, except for any taxes and assessments, the
amount, applicability or validity of which is currently being contested in good
faith by appropriate proceedings and with respect to which PPTC has set aside on
its books adequate reserves. There are no tax liens on any of PPTC's assets
except those with respect to taxes not yet due and payable. There are no pending
tax examinations of PPTC's tax returns nor has PPTC received a revenue agent's
report asserting a tax deficiency in the last twelve (12) months. There are not
and will not be at the Closing Date, any claims pending or asserted against PPTC
for unpaid taxes by any federal, state or other governmental body. PPTC has
withheld from each payment made to employees of PPTC the amount of all taxes
(including, but not limited to, federal, state and local income taxes and
Federal Insurance Contribution Act taxes) required to be withheld therefrom and
all amounts customarily withheld therefrom, and has set aside all other employee
contributions or payments customarily set aside with respect to such wages and
has paid or will pay the same to, or has deposited or will deposit such payment
with, the proper tax receiving officers or other appropriate authorities.
(p) Employee Benefit Plans.
(i) List of Plans. Section 3(p) of the Disclosure Schedule
contains an accurate and complete list of all employee benefit plans
("Employee Benefit Plans") within the meaning of Section 3(3) of ERISA,
whether or not any Employee Benefit Plans are otherwise exempt from the
provisions of ERISA, established, maintained or contributed to by PPTC
(including all employers (whether or not incorporated) which by reason
of common control are treated together with PPTC and/or the Physician
Owners as a single employer within the meaning of Section 414 of the
Code) since September 2, 1974.
(ii) Status of Plans. To the Knowledge of PPTC and the
Physician Owners, PPTC has never maintained and does not now maintain
or contribute to any Employee Benefit Plan subject to ERISA, which is
not in substantial compliance with ERISA or which has incurred any
accumulated funding deficiency within the meaning of Section 412 or
418B of the Code, or which has applied for or obtained a waiver from
the Internal Revenue Service of any minimum funding requirement under
Section 412 of the Code or which is subject to Title IV of ERISA. PPTC
has not incurred any liability
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to the Pension Benefit Guaranty Corporation ("PBGC") in connection with
any Employee Benefit Plan covering any employees of PPTC or ceased
operations at any facility or withdrawn from any such Plan in a manner
which could subject it to liability under Section 4062(f), 4063 or 4064
of ERISA, and knows of no facts or circumstances which might give rise
to any liability of PPTC to the PBGC under Title IV of ERISA which
could reasonably be anticipated to result in any claims being made
against PPTC by the PBGC. PPTC has not incurred any withdrawal
liability (including any contingent or secondary withdrawal liability)
within the meaning of Sections 4201 and 4202 of ERISA, to any Employee
Benefit Plan which is a Multiemployer Plan (as defined in Section 4001
of ERISA), and, to the Knowledge of PPTC and the Physician Owners, no
event has occurred, and there exists no condition or set of
circumstances, which represent a material risk of the occurrence of any
withdrawal from or the partition, termination, reorganization or
insolvency of any Multiemployer Plan which would result in any
liability of PPTC.
(iii) Contributions. Full payment has been made of all amounts
which PPTC is required, under applicable law or under any Employee
Benefit Plan or any agreement relating to any Employee Benefit Plan to
which PPTC is a party, to have paid as contributions thereto as of the
last day of the most recent plan year of such Employee Benefit Plan
ended prior to the date hereof. PPTC has made adequate provision for
reserves to meet contributions that have not been made because they are
not yet due under the terms of any Employee Benefit Plan or related
agreements. Benefits under all Employee Benefit Plans are as
represented and have not been increased subsequent to the date as of
which documents have been provided.
(iv) Tax Qualification. Each Employee Benefit Plan intended to
be qualified under Section 401(a) of the Code has been determined to be
so qualified by the Internal Revenue Service and, nothing has occurred
since the date of the last such determination which resulted or is
likely to result in the revocation of such determination.
(v) Transactions. To the Knowledge of PPTC and the Physician
Owners, PPTC has not engaged in any transaction with respect to the
Employee Benefit Plans which would subject it to a material tax,
penalty or liability for prohibited transactions under ERISA or the
Code nor have any of its directors, officers or employees to the extent
they or any of them are fiduciaries with respect to such plans,
breached any of their responsibilities or obligations imposed upon
fiduciaries under Title I of ERISA which would result in any material
claim being made under or by or on behalf of any such plans by any
party with standing to make such claim.
(vi) Other Plans. PPTC presently does not maintain any
Employee Benefit Plans or any other foreign pension, welfare or
retirement benefit plans other than those listed on Section 3(p) of the
Disclosure Schedule.
(vii) Documents. PPTC has delivered or caused to be delivered
to SCN true and complete copies of (i) all Employee Benefit Plans as in
effect, together with all amendments thereto which will become
effective at a later date, as well as the latest IRS determination
letter obtained with respect to any such Employee Benefit Plan
qualified
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<PAGE>
under Section 401 or 501 of the Code, and (ii) the most recently filed
Form 5500 for each Employee Benefit Plan required to file such form.
(q) Third-Party Relations. PPTC has not received any notice that any
material patient, supplier, employee or associated physician intends to cease
doing business with PPTC.
(r) Compliance with Applicable Laws. To the Knowledge of PPTC or the
Physician Owners, PPTC has operated in material compliance with all federal,
state, county and municipal laws, constitutions, ordinances, statutes, rules,
regulations and orders applicable thereto ("Applicable Laws"). To the Knowledge
of PPTC or the Physician Owners, neither PPTC nor any physician associated with
or employed by PPTC has received payment or any remuneration whatsoever to
induce or encourage the referral of patients or the purchase of goods and/or
services as prohibited under 42 U.S.C. ss. 1320a-7b(b), or otherwise perpetrated
any Medicare or Medicaid fraud or abuse nor has any fraud or abuse been alleged
within the last five (5) years by any government agency.
(s) Employee Compensation. PPTC has paid or discharged or will pay or
discharge or assume all liabilities for compensation and benefits to which all
employees, including physician employees, are entitled through the Closing Date,
including but not limited to all salaries, wages, bonuses, incentive
compensation, payroll taxes, hospitalization and medical expenses, deferred
compensation, and vacation and sick pay, as well as any severance pay becoming
due as a result of the termination of certain of PPTC's employees.
(t) Environmental Matters.
(i) To the Knowledge of PPTC and the Physician Owners, PPTC is
in material compliance with all applicable Environmental Laws.
(ii) PPTC has not authorized or conducted nor does PPTC or the
Physician Owners have Knowledge of the disposal or release, or other
handling of any Medical Waste, hazardous substance, hazardous waste,
hazardous material, hazardous constituent, toxic substance, pollutant,
contaminant, asbestos, radon, polychlorinated biphenyls ("PCBs"),
petroleum product or waste (including crude oil or any fraction
thereof), natural gas, liquefied gas, synthetic gas, biohazardous or
biomedical material, or other material defined, regulated controlled or
potentially subject to any remediation requirement under any
Environmental Law (collectively "Hazardous Materials"), on, in, under
or affecting or any property owned or leased by PPTC.
(iii) To the Knowledge of PPTC and the Physician Owners, PPTC
has, and is in compliance with, all licenses, permits, registrations,
and government authorizations necessary to operate under all applicable
Environmental Laws. Section 3(t) of the Disclosure Schedule lists all
such licenses, permits, registrations and government authorizations
required by any Environmental Law.
(iv) PPTC has not received any written or oral notice from any
governmental agency or entity or any other Person and, to the Knowledge
of PPTC and the Physician Owners, there is no pending or threatened
claim, litigation or any administrative agency proceeding that: (a)
alleges a violation of any Environmental Law(s) by PPTC or, with
respect to the Purchased Assets or any property owned or leased by
PPTC, (b) alleges that PPTC is a liable party or potentially
responsible party under the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. ss. 9601, et seq., or any
analogous state law, (c) has resulted or could result in the attachment
of an environmental lien on any of the Purchased Assets or property
owned or leased by PPTC or (d) alleges that PPTC is liable for any
contamination of the environment, contamination of any property owned
or leased by PPTC, damage to natural resources, property damage, or
personal injury based
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on its activities or the activities of any predecessor or third parties
involving Hazardous Materials, whether arising under the Environmental
Laws, common law principles, or other legal standards.
(v) With respect to the generation, transportation, treatment,
storage and disposal or other handling of Medical Waste, to the
Knowledge of PPTC and the Physician Owners, PPTC has complied with all
Medical Waste Laws.
(u) Healthcare Compliance. PPTC is participating in or otherwise
authorized to receive reimbursement from Medicare and Medicaid and is a party to
other third-party payor agreements, if any, discussed in Section 3(i) of the
Disclosure Schedule. All necessary certifications and contracts required for
participation in such programs are in full force and effect and have not been
amended or otherwise modified, rescinded, revoked or assigned, and, to the
Knowledge of PPTC and the Physician Owners, no condition exists or event has
occurred which in itself or with the giving of notice or the lapse of time or
both would result in the suspension, revocation, impairment, forfeiture or
non-renewal of any such third-party payor program. To the Knowledge of PPTC and
the Physician Owners, PPTC is in compliance in all material respects with the
requirements of all such third-party payors. PPTC, the Physician Owners, and, to
the Knowledge of PPTC and the Physician Owners, its physician employees do not
have any financial relationship (whether investment interest, compensation
interest, or otherwise) with any entity to which any of the foregoing refer
patients, except for such financial relationships that qualify for exceptions to
state and federal laws restricting physician referrals to entities in which they
have a financial interest.
(v) Fraud and Abuse. To the Knowledge of PPTC or the Physician Owners,
PPTC, the Physician Owners, and persons and entities providing professional
services for PPTC have not engaged in any activities which are prohibited under
42 U.S.C. ss. 1320a-7b, or the regulations promulgated thereunder pursuant to
such statutes, or related state or local statutes or regulations, or which are
prohibited by rules of professional conduct, including the following: (a)
knowingly and willfully making or causing to be made a false statement or
representation of a material fact in any application for any benefit or payment;
(b) knowingly and willfully making or causing to be made any false statement or
representation of a material fact for use in determining rights to any benefit
or payment; (c) failing to disclose knowledge by a claimant of the occurrence of
any event affecting the initial or continued right to any benefit or payment on
its own behalf or on behalf of another, with intent to fraudulently secure such
benefit or payment; or (d) knowingly and willfully soliciting or receiving any
remuneration (including any kickback, bribe, or rebate), directly or indirectly,
overtly or covertly, in cash or in kind or offering to pay or receive such
remuneration (1) in return for referring an individual to a person for the
furnishing or arranging for the furnishing or any item or service for which
payment may be made in whole or in part by Medicare or Medicaid or (2) in return
for purchasing, leasing, or ordering or arranging for or recommending
purchasing, leasing or ordering any good, facility, service or item for which
payment may be made in whole or in part by Medicare or Medicaid.
(w) Practice Compliance. PPTC is duly licensed as a medical practice
and, to the Knowledge of PPTC and the Physician Owners, is lawfully operated in
accordance with the requirements of all Applicable Laws and has all necessary
authorizations for the use and operation of a medical practice, all of which are
in full force and effect. There are no outstanding notices of deficiencies
relating to PPTC issued by any governmental authority or third-party payor
requiring conformity or compliance with any applicable law or condition for
participation with such governmental authority or third-party payor, and after
reasonable and independent inquiry and due diligence and investigation, PPTC has
neither received notice nor has any Knowledge or reason to believe that such
necessary authorizations may be revoked or not renewed in the Ordinary Course of
Business.
(x) Rates and Reimbursement Policies. PPTC does not have any rate
appeal currently pending before any governmental authority or any administrator
of any third-party payor program.
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(y) [intentionally omitted]
(z) Guaranties. PPTC is not a guarantor and otherwise is not liable for
any liability or obligation (including indebtedness) of any other Person.
(aa) Powers of Attorney. There are no outstanding powers of attorney
executed by PPTC, except as may be contained in financing documents or security
agreements listed in Section 3(i) of the Disclosure Schedule.
(bb) Tangible Assets. PPTC owns or leases all land, buildings,
machinery, equipment, and other tangible assets necessary for the conduct of its
business as presently conducted. Each tangible asset is in good operating
condition and repair (subject to normal wear and tear).
(cc) SCN Warrants; Investment Intent.
(i) Neither PPTC nor the Physician Owners owns, beneficially
or otherwise, any SCN Shares.
(ii) The SCN Warrants issuable pursuant to this Agreement are
being acquired by PPTC solely for its own account for investment and
not with a view to the distribution thereof, and PPTC acknowledges and
understands that the SCN Warrants will bear a legend in substantially
the following form:
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR UNDER ANY STATE SECURITIES ACT AND
CANNOT BE SOLD, TRANSFERRED, OR OTHERWISE DISPOSED OF UNLESS
REGISTERED UNDER SUCH ACTS OR UNLESS EXEMPTIONS FROM
REGISTRATION ARE AVAILABLE.
(iii) PPTC represent and warrant as follows:
(A) PPTC is an "accredited investor" as defined under
Rule 501 of Regulation D promulgated under the Securities Act.
(B) PPTC confirms that SCN has made available to it
or to its representatives the opportunity to ask questions of
SCN officers and directors and to acquire such information
about the SCN Warrants and the business and financial
condition of SCN as PPTC requested, which additional
information has been received.
(C) In deciding to acquire the SCN Warrants pursuant
to this Agreement, PPTC consulted with its legal, financial,
and tax advisors with respect to the transactions contemplated
by this Agreement and the nature of the investment together
with any additional information provided under subsection (B)
above.
(D) PPTC has adequate means of providing for its
current needs and contingencies and has no need for liquidity
in its investment in SCN. PPTC either alone or with its
representatives, has such knowledge and experience in
financial and business matters that it is capable of
evaluating the merits and risks of consummating the
transactions contemplated by this Agreement.
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<PAGE>
(E) PPTC understands and acknowledges that the
investment in the SCN Warrants is a speculative investment
which involves a high degree risk of loss of its investment
therein; that there are substantial restrictions on the
transferability of the SCN Warrants under the applicable
provisions of the Securities Act and the rules and regulations
promulgated thereunder and applicable state securities or
"blue sky" laws; and, accordingly, that it may not be possible
to liquidate an investment in the SCN Warrants.
(F) PPTC have been advised and understands that (i)
the offer and sale of the SCN Warrants have not been
registered under the Securities Act; (ii) the SCN Warrants
must be held indefinitely and PPTC must continue to bear the
economic risk of the investment in the SCN Warrants unless the
offer or sale of the SCN Warrants is subsequently registered
under the Securities Act or an exemption from such
registration is available; (iii) Rule 144 promulgated under
the Securities Act is not presently available with respect to
the sale of any securities of SCN, including the SCN Warrants,
and when and if the SCN Warrants may be disposed of without
registration in reliance on Rule 144, such disposition can be
made only in accordance with the terms and conditions of such
Rule, or another exemption from registration; (iv) the
restrictive legends described in Section 3(cc)(ii) shall be
placed on the certificates representing the SCN Warrants; and
(v) a notation shall be made in the appropriate records of SCN
indicating that the SCN Warrants are subject to restrictions
on transfer and appropriate stop-transfer instructions will be
issued to any transfer agent with respect to the SCN Warrants.
4. Representations and Warranties of SCN. SCN represents and warrants
to PPTC that the statements contained in this Section 4 are correct and complete
as of the date of this Agreement and will be correct and complete as of the
Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Section 4), except as
set forth in the Disclosure Schedule. The Disclosure Schedule will be arranged
in paragraphs corresponding to the numbered and lettered paragraphs contained in
this Section 4.
(a) Organization. SCN is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Delaware.
(b) Capitalization. The entire authorized capital stock of SCN consists
of fifty million (50,000,000) SCN Shares, of which Sixteen Million Four Hundred
Thirty Eight Thousand Eight Hundred Fifty (16,438,850) are issued and
outstanding and two million (2,000,000) shares of preferred stock, none of which
is issued or outstanding. The SCN Warrants to be issued upon consummation of the
transaction have been duly authorized and, upon consummation of the transaction,
will be validly issued, fully paid, and nonassessable. The shares issuable upon
exercise of the SCN Warrants (the "Warrant Shares") have been duly authorized
and, upon exercise of the SCN Warrants in accordance with the terms thereof,
will be validly issued, fully paid, and nonassessable.
(c) Authorization of Transaction. SCN has full power and authority
(including full corporate power and authority) to execute and deliver this
Agreement, to issue the SCN Warrants to and the Warrant Shares and otherwise to
perform its obligations hereunder. Except as set forth in the preceding
sentence, this Agreement constitutes the valid and legally binding obligation of
SCN, enforceable in accordance with its terms and conditions, subject to
applicable bankruptcy reorganization, insolvency, fraudulent conveyance,
moratorium or other laws of general application affecting the enforcement of
creditor's rights.
(d) Noncontravention. To the Knowledge of SCN, neither the execution
and the delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, (i) violates any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge or other restriction of any
government, governmental agency,
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<PAGE>
professional regulatory organization or court to which SCN is subject or may
become subject as a result of the transaction contemplated by this Agreement, or
any provision of the charter or bylaws of SCN or (ii) conflicts with, results in
a breach of, constitutes a default under, results in the acceleration of,
creates in any party the right to accelerate, terminate, modify, or cancel, or
require any notice under any material agreement, contract, lease, license,
instrument or other arrangement to which SCN is a party or by which it is bound
or to which any of its assets is subject. Other than state and federal filings
required by the Securities Act and similar state statutes, SCN does not need to
give any notice to, make any filing with, or obtain any authorization, consent,
or approval of any government or governmental agency in order for the Parties to
consummate the transactions contemplated by this Agreement.
(e) Brokers' Fees. SCN does not have any liability or obligation to pay
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which PPTC could become liable
or obligated.
(f) Securities Filings. All reports and statements filed with respect
to SCN pursuant to the Securities Act of 1933 (the "Securities Act") or the
Securities Exchange Act of 1934 (the "Exchange Act") conform to the requirements
of the Securities Act and the Exchange Act and the rules and regulations
promulgated thereunder and did not include at the time of filing such document
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading.
5. Covenants. The Parties agree as follows with respect to the period
from and after the execution of this Agreement.
(a) General. Each of the Parties will use its or his best efforts to
take all action and to do all things necessary in order to consummate and make
effective the transactions contemplated by this Agreement (including
satisfaction of the closing conditions set forth in Section 6 below) to be
satisfied by him or it. This Section 5(a) shall not be construed to obligate any
of the Parties to waive any condition precedent to his or its obligations to
perform hereunder.
(b) Notices and Consents. PPTC will give any notices to third parties,
and will use its best efforts to obtain any third party consents, necessary or
required to consummate the transaction or that SCN reasonably may request in
connection with the matters referred to in Section 3(i) above.
(c) Regulatory Matters and Approvals. Each of the Parties will give any
notices to, make any filings with, and use its reasonable best efforts to obtain
any authorizations, consents, and approvals of governments and governmental
agencies in connection with the transactions contemplated by this Agreement.
(d) Operation of Business. From the date of this Agreement through the
Closing Date, without the prior written consent of SCN which shall not be
unreasonably withheld, PPTC will not engage in any practice, take any action, or
enter into any transaction outside the Ordinary Course of Business, except any
that will not adversely affect the sale of the Purchased Assets or The Service
Fee to which SCN would otherwise be entitled under the Service Agreement and
except for the exercise or enforcement of PPTC's rights hereunder.
(e) Further Acts and Assurances. PPTC and the Physician Owners shall,
at any time and from time to time at and after the Closing, upon request of SCN,
take any and all reasonable steps necessary to place SCN in possession and
operating control of the Purchased Assets, and will do, execute, acknowledge and
deliver, or will cause to be done, executed, acknowledged and delivered, all
such further acts, deeds, assignments, transfers, conveyances, powers of
attorney and assurances as may be reasonably required for the better
transferring and confirming to SCN or its successors or assigns, or for reducing
to possession, any or all of the Purchased Assets.
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<PAGE>
(f) Full Access. Between the date hereof and the Closing Date, upon
three (3) days prior notice, PPTC will permit representatives of SCN to have
full access to all premises, properties, personnel, books, records (including
tax records), contracts, and documents of or pertaining to PPTC during normal
business hours. SCN (i) will maintain the confidentiality and not disclose to
third parties any information it receives from PPTC in the course of the reviews
occurring prior to the date hereof or as contemplated by this Section 5(e), (ii)
will not use any of the confidential information except in connection with this
Agreement, (iii) if this Agreement is terminated for any reason whatsoever,
agrees to return to PPTC all tangible embodiments (and all copies) thereof which
are in its possession, and (iv) will cause its representatives to also so
preserve the confidentiality of such information.
(g) Notice of Developments. Each Party will give prompt written notice
to the other Parties of any material adverse development causing a breach of any
of its own representations and warranties in Section 3 or Section 4 above. No
disclosure by any Party pursuant to this Section 5(f), however, shall be deemed
to amend or supplement the Disclosure Schedule or to prevent or cure any
misrepresentation, breach of warranty, or breach of covenant.
(h) Exclusivity. Until the earlier of (i) July 21, 1997 or (ii) the
Closing Date, PPTC will not solicit, initiate, or encourage the submission of
any proposal or offer from any Person relating to the acquisition of all or
substantially all of the capital stock or assets of PPTC (including any
acquisition structured as a merger, consolidation, or share exchange). PPTC
shall notify SCN immediately if any Person makes any proposal, offer, inquiry,
or contact with respect to any of the foregoing.
(i) [intentionally omitted]
(j) Corporate Authorization. By execution of this Agreement, the
Physician Owners agree to take any and all steps necessary and will do, execute,
acknowledge and deliver, or will cause to be done, executed, acknowledged and
delivered, all such acts, deeds and assurances required in order to authorize
the consummation of the transactions contemplated by this Agreement, including
voting as directors of PPTC in favor of the transactions contemplated by this
Agreement and voting as an owner of PPTC in favor of the transactions
contemplated by this Agreement at any meeting (or in any action by written
consent) required by the FPCA.
(k) Securities Law Compliance. PPTC shall not dispose of or distribute
the SCN Warrants received as a result of the transactions contemplated by this
Agreement except in accordance with the provisions of the Securities Act, the
provisions of any rule or regulation adopted by the Securities and Exchange
Commission pursuant to the Securities Act and "blue sky" laws or any rules or
regulations thereunder of any applicable state; provided, however, that the SCN
Warrants may be distributed by PPTC to its stockholders and officers at any time
or from time to time, but shall not be transferable by such stockholders and
officers, except in accordance with applicable securities laws.
(l) Malpractice Insurance. On or before the Closing, all physicians and
employees of PPTC shall be covered by medical malpractice insurance covering
malpractice of the physicians and employees.
(m) Employee Benefit Plans. Prior to the Closing Date, all Employee
Benefit Plans shall be terminated in accordance with Applicable Law.
6. Conditions to Obligation to Close.
(a) Conditions to Obligation of SCN. The obligation of SCN to
consummate the transactions contemplated by this Agreement is subject to
satisfaction of the following conditions:
(i) PPTC shall have procured all of the third party consents
specified in Section 5(b) above;
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<PAGE>
(ii) the representations and warranties set forth in Section 3
above shall be true and correct in all material respects at and as of
the Closing Date;
(iii) PPTC shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(iv) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency
of any federal, state, local, or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction, judgment, order, decree,
ruling, or charge would (A) prevent consummation of any of the
transactions contemplated by this Agreement, (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation, or (C) affect adversely the right of SCN to own the
Purchased Assets;
(v) all actions to be taken by PPTC in connection with
consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby, have been taken or
delivered to SCN and are satisfactory in form and substance to SCN;
(vi) SCN's Board of Directors shall have approved the
transactions contemplated by this Agreement in their sole and absolute
discretion.
SCN may waive any condition specified in this Section 6(a) if it executes a
writing so stating at or prior to the Closing.
(b) Conditions to Obligation of PPTC. The obligation of PPTC to
consummate the transactions contemplated by this Agreement is subject to
satisfaction of the following conditions:
(i) the transactions contemplated by this Agreement shall be
approved by PPTC's Board of Directors and shall receive the Requisite
PPTC Approval;
(ii) the representations and warranties set forth in Section 4
above shall be true and correct in all material respects at and as of
the Closing Date;
(iii) SCN shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(iv) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency
of any federal, state, local or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction, judgment, order, decree,
ruling or charge would (A) prevent consummation of any of the
transactions contemplated by this Agreement, (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation, or (C) affect adversely the right of SCN to own the
Purchased Assets;
(v) PPTC and George May shall have entered into an agreement
pursuant to which PPTC shall purchase from George May, and George May
shall sell to PPTC, all shares of capital stock of PPTC owned by George
May as of the Closing Date (the "May Stock Redemption Agreement");
(vi) PPTC shall have received a duly executed release or
termination of all security interests in respect of the Purchased
Assets in favor of any Person; and
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<PAGE>
(vii) Each non-owner physician employee of PPTC shall have
executed and delivered an agreement not to compete in favor of PPTC.
PPTC may waive any condition specified in this Section 6(b) if it executes a
writing so stating at or prior to the Closing.
7. Items to be Delivered at or Prior to Closing.
(a) By the Physician Owners or PPTC. The Physician Owners or PPTC, as
applicable, shall execute and deliver to SCN, or cause to be executed and
delivered, prior to or at the Closing:
(i) Certified resolutions of PPTC authorizing the execution of
all documents and the consummation of all transactions contemplated
hereby;
(ii) A Bill of Sale in substantially the form attached hereto
as Exhibit 7(a)(ii);
(iii) A Service Agreement in substantially the form attached
hereto as Exhibit 7(a)(iii);
(iv) An Assignment and Assumption Agreement in substantially
the form attached hereto as Exhibit 7(a)(iv);
(v) A Lease Assignment and Assumption Agreements in
substantially the form attached hereto as Exhibit 7(a)(v);
(vi) A Registration Rights Agreement in substantially the form
attached hereto as Exhibit 7(a)(vi);
(vii) A certificate duly executed by the President of PPTC
that as of the Closing Date, all representations and warranties of PPTC
are true and correct, all covenants and agreements contained in the
Agreement to be performed by PPTC have been performed or complied with,
and all conditions to Closing have been satisfied.
(viii) An opinion from PPTC's counsel in substantially the
form attached hereto as Exhibit 7(a)(viii); and
(ix) Such other instruments as may be reasonably requested by
SCN in order to effect or carry out the intent of this Agreement.
(b) By SCN. SCN shall deliver to PPTC at or prior to the Closing:
(i) The Purchase Price;
(ii) SCN Warrants in substantially the form attached hereto as
Exhibit 7(b)(ii);
(iii) An Assignment and Assumption Agreement in substantially
the form attached hereto as Exhibit 7(a)(iv);
(iv) Lease Assignment and Assumption Agreements in
substantially the form attached hereto as Exhibit 7(a)(v);
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<PAGE>
(v) A Registration Rights Agreement in substantially the form
attached hereto as Exhibit 7(a)(vi);
(vi) The Knight Employment Agreement;
(vii) A certificate, duly executed by the President of SCN,
stating as of the Closing Date, all representations and warranties of
SCN are true, all covenants and agreements contained in the Agreement
to be performed by SCN have been performed or complied with and all
conditions to Closing have been satisfied;
(viii) A Service Agreement in substantially the form attached
hereto as Exhibit 7(a)(iii);
(ix) An opinion from SCN's counsel in substantially the form
attached hereto as Exhibit 7(b)(ix); and
(x) Such other instruments as may be reasonably requested by
PPTC or the Physician Owners in order to effect or carry out the intent
of this Agreement.
8. Termination.
(a) Termination of Agreement. Either of the Parties may terminate this
Agreement with the prior authorization of its board of directors (whether before
or after stockholder approval) as provided below:
(i) the Parties may terminate this Agreement by mutual written
consent at any time prior to the Closing Date;
(ii) SCN may terminate this Agreement by giving written notice
to PPTC at any time prior to the Closing Date (A) in the event PPTC has
breached any representation, warranty, or covenant contained in this
Agreement in any material respect, SCN has notified PPTC of the breach,
and the breach has continued without cure for a period of 30 days after
the notice of breach or (B) if the Closing shall not have occurred on
or before July 21, 1997 by reason of the failure of any condition
precedent under Section 6(a) hereof (unless the failure results
primarily from SCN breaching any representation, warranty, or covenant
contained in this Agreement); or
(iii) PPTC may terminate this Agreement by giving written
notice to SCN at any time prior to the Closing Date (A) in the event
SCN has breached any representation, warranty, or covenant contained in
this Agreement in any material respect, PPTC has notified SCN of the
breach, and the breach has continued without cure for a period of 30
days after the notice of breach or (B) if the Closing shall not have
occurred on or before July 21, 1997 by reason of the failure of any
condition precedent under Section 6(b) hereof (unless the failure
results primarily from PPTC breaching any representation, warranty, or
covenant contained in this Agreement).
(b) Effect of Termination. If any Party terminates this Agreement
pursuant to Section 8(a) above, all rights and obligations of the Parties
hereunder shall terminate without any liability of any Party to any other Party
(except for any liability of any Party then in breach).
9. Indemnification.
(a) Indemnification by PPTC and the Physician Owners. PPTC shall
defend, indemnify and hold harmless SCN, its successors and assigns, officers
and directors against any and all losses, liabilities, expenses (including
without limitation reasonable attorney's fees) and damages resulting from or
arising out of the breach, untruth or inaccuracy of any representation, warranty
or covenant of PPTC or the Physician Owners set forth in this Agreement or from
any
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<PAGE>
liability or expense of SCN resulting from PPTC's operations prior to the
Closing Date or from any liability or expense of SCN resulting from any of the
litigation described in Section 3(m) of the Disclosure Schedule. Neither PPTC
nor the Physician Owners shall be liable to SCN for any claims against PPTC or
the Physician Owners under this Section 9(a) unless and until the aggregate of
all claims against PPTC or the Physician Owners exceeds the sum of $50,000.00,
whereupon SCN shall be entitled to recover the full amount of all claims,
including the initial $50,000.00. The Physician Owners hereby, jointly and
severally, guaranty the collection by SCN of the amount it is entitled to be
paid by PPTC pursuant to this Section 9 of this Agreement.
(b) Notice to PPTC and the Physician Owners; Opportunity to Defend. SCN
agrees to give prompt notice to PPTC and the Physician Owners of the assertion
of any claim, or the commencement of any suit, action or proceeding, in respect
of which indemnity may be sought under Section 9(a). PPTC and the Physician
Owners may participate in and at their election, or at the request of SCN,
assume the defense of any such suit, action or proceeding at PPTC or the
Physician Owners' expense. Neither PPTC nor the Physician Owners shall be liable
under Section 9(a) for any settlement effected without their consent of any
claim, litigation or proceeding in respect of which indemnity may be sought
under Section 9(a) which consent shall not be unreasonably withheld.
(c) General Indemnification by SCN. SCN agrees to and shall defend,
indemnify and hold harmless the Physician Owners, their heirs and assigns
against any and all losses, liabilities, expenses (including without limitation
reasonable attorneys' fees) and damages resulting from the breach, untruth or
inaccuracy of any representation, warranty or covenant of SCN set forth in this
Agreement. SCN shall not be liable to the Physician Owners for any claims
against SCN under this Section 9(c) unless and until the aggregate of all claims
against SCN exceeds the sum of $50,000.00, whereupon the Physician Owners shall
be entitled to recover the full amount of all claims, including the initial
$50,000.00.
(d) Notice to SCN; Opportunity to Defend. The Physician Owners agree to
give prompt notice to SCN of the assertion of any claim, or the commencement of
any suit, action or proceeding in respect of which indemnity may be sought under
Section 9(c). SCN may participate in and at its election, or at the request of
the Physician Owners, assume the defense of any such suit, action or proceeding
at SCN's expense. SCN shall not be liable under Section 9(c) for any settlement
effected without its consent of any claim, litigation or proceeding in respect
of which indemnity may be sought hereunder, which consent shall not be
unreasonably withheld.
(e) Right of Setoff. In the event of any breach of warranty,
representation, covenant or agreement by PPTC or the Physician Owners giving
rise to indemnification to SCN under Section 9(a) hereof, SCN shall be entitled
to offset the amount of damages incurred by it as a result of such breach of
warranty, representation, covenant or agreement against the amounts payable to
PPTC under the Service Agreement. In the event that SCN determines that an
amount is to be so offset, as a condition precedent to such right of setoff, SCN
shall give PPTC and the Physician Owners written notice of the amount of such
proposed setoff and the basis therefor within thirty (30) days after the date on
which such amount is finally determined. If SCN shall not have received written
notice from PPTC and the Physician Owners contesting such setoff within twenty
(20) days of their receipt of such written notice from SCN, the setoff shall be
deemed to have been consented to by PPTC and the Physician Owners, and SCN shall
be entitled to deduct the entire amount claimed as a setoff from the next
succeeding amounts payable under the Service Agreement. In the event that PPTC
and the Physician Owners shall object to the proposed setoff by written notice
received by SCN during such twenty (20) day period, the entitlement of SCN to
the claimed setoff shall be determined as set forth in Sections 10.4.3 and
10.4.4. of the Service Agreement.
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<PAGE>
10. Miscellaneous.
(a) Survival. The representations and warranties of the Physician
Owners, PPTC and SCN contained in this Agreement and the indemnifications
contained herein shall survive the Closing. No claim for indemnification with
respect to any alleged misrepresentation or breach of warranty or other claim by
SCN under this Agreement may be made after two (2) years following the Closing
Date. Any matter to which indemnification pertains and with respect to which a
claim has been asserted or threatened following the Closing Date shall continue
to be subject to the indemnification under this Agreement until finally
terminated, settled, resolved or adjudicated; and all terms, conditions and
stipulations of this Agreement shall likewise continue to apply.
(b) No Third-Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
(c) Entire Agreement. This Agreement (including the documents referred
to herein) constitutes the entire agreement between the Parties and supersedes
any prior understandings, agreements, or representations by or between the
Parties, written or oral, to the extent they related in any way to the subject
matter hereof.
(d) Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other Party.
(e) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(f) Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(g) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to PPTC: Copy to:
Jay Knight, CEO Scott H. Margol, Esq.
Ortho-Associates, P.A. Ruden, McClosky, Smith, Schuster &
301 N.W. 84th Ave. Russell
Plantation, FL 33324 200 East Broward Blvd.
Facsimile: (954) 370-0498 Fort Lauderdale, FL 33302
Facsimile: (954) 764-4996
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<PAGE>
Martin E. Hale, M.D.
2965 Surrey Lane
Fort Lauderdale, FL 33331
Martin M. May, M.D.
803 West Coco Plum Circle
Plantation, FL 33324
Alan M. Lazar, M.D.
2810 Hackney Road
Fort Lauderdale, FL 33331
If to SCN: Copy to:
Kerry R. Hicks, President David T. Popwell, Esq.
Specialty Care Network, Inc. Baker, Donelson, Bearman & Caldwell
44 Union Boulevard, Suite 600 165 Madison Ave, Suite 2100
Lakewood, Colorado 80228 Memphis, Tennessee 38103
Facsimile: (303) 716-1298 Facsimile: (901) 577-2303
Any party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other party
notice in the manner herein set forth.
(h) Governing Law Venue. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of Florida without
giving effect to any choice or conflict of law provision or rule (whether of the
State of Florida or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of Florida. Each of the
parties submits to the jurisdiction of any state or federal court sitting in
Denver, Colorado, in any action or proceeding arising out of or relating to this
Agreement and agrees that all claims in respect of the action or proceeding may
be heard and determined in any such court. Each party also agrees not to bring
any action or proceeding arising out of or relating to this Agreement in any
other court. Each of the parties waives any defense of inconvenient forum to the
maintenance of any action or proceeding so brought and waives any bond, surety,
or other security that might be required of any other party with respect
thereto.
(i) Amendments and Waivers. The Parties may mutually amend any
provision of this Agreement at any time prior to the Effective Time with the
prior authorization of their respective boards of directors; provided, however,
that any amendment effected subsequent to stockholder approval will be subject
to the restrictions contained in the Florida FPCA. No amendment of any provision
of this Agreement shall be valid unless the same shall be in writing and signed
by each of the Parties. No waiver by any party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
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(j) Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(k) Expenses. Each of the Parties will bear its own costs and expenses
(including legal fees and expenses) incurred in connection with this Agreement
and the transactions contemplated hereby.
(l) Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context otherwise requires. The
word "including" shall mean including without limitation.
(m) No Referrals Required. The Parties agree that no part of this
Agreement shall be construed to induce or encourage the referral of patients or
the purchase of health care services or supplies. The Parties acknowledge that
there is no requirement under this Agreement or any other agreement between PPTC
and SCN that any party refer any patients to any health care provider or
purchase any health care goods or services from any source. Additionally, no
payment under this Agreement is in return for the referral of patients, if any,
or in return for purchasing, leasing or ordering services from SCN or any of
SCN's affiliates. The Parties may refer patients to any company or person
providing services and will make such referrals, if any, consistent with
professional medical judgment and the needs and wishes of the relevant patients.
(n) Incorporation of Exhibits and Schedules. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
* * * * *
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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
SPECIALTY CARE NETWORK, INC.
By:____________________________________
Title:_________________________________
ORTHO-ASSOCIATES, P.A. D/B/A PARK
PLACE THERAPEUTIC CENTER
By:____________________________________
Title:_________________________________
PHYSICIAN OWNERS:
---------------------------------------
Martin E. Hale, M.D.
---------------------------------------
Allan M. Lazar, M.D.
---------------------------------------
Martin M. May, M.D.
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