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): September 10, 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.
Effective September 10, 1997, Specialty Care Network, Inc. (the "Company")
acquired, through merger (the "OSAL Merger"), substantially all of the assets
and certain liabilities of Orthopedic Surgeons Associated of Lima, Inc., an Ohio
professional service corporation ("OSAL"), pursuant to the terms of a Merger
Agreement, dated September 10, 1997, by and among the Company, OSAL, Roger L.
Terry, M.D., David L. Davis, M.D., David B. Steiner, M.D., John J. Duggan, M.D.,
James A. O'Neill, M.D. and Mark G. McDonald, M.D. (the "OSAL Merger Agreement").
OSAL is a six physician orthopaedics group with its headquarters in Lima, Ohio.
In connection with the OSAL Merger, the common stock of OSAL was exchanged for
aggregate consideration of approximately $7,530,000 consisting of approximately
$1,115,000 in cash and 498,244 shares of Company Common Stock. The cash portion
of the consideration paid for the assets pursuant to the OSAL Merger Agreement
was from the Company's line of credit. The assets acquired from OSAL pursuant to
the OSAL Merger include certain equipment used by OSAL in the practice of
medicine.
Effective September 10, 1997, the Company acquired, through merger (the
"BJCL Merger"), substantially all of the assets and certain liabilities of Bone
& Joint Center of Lima, Inc., an Ohio professional service corporation ("BJCL"),
pursuant to the terms of a Merger Agreement, dated September 10, 1997, by and
among the Company, BJCL and Michael J. Wieser, M.D. BJCL is an orthopaedic
practice located in Lima, Ohio. In connection with the BJCL Merger, the common
stock of BJCL was exchanged for aggregate consideration of $1,255,965 consisting
of 97,473 shares of Company Common Stock. The assets acquired from BJCL pursuant
to the BJCL Merger include certain equipment used by BJCL in the practice of
medicine.
Effective September 10, 1997, the Company acquired, through merger (the
"LOI Merger"), substantially all of the assets and certain liabilities of Lima
Orthopedics, Inc., an Ohio professional service corporation ("LOI"), pursuant to
the terms of a Merger Agreement, dated September 10, 1997, by and among the
Company, LOI and James E. Bagenstose, M.D. (the "LOI Merger Agreement"). LOI is
an orthopaedic practice located in Lima, Ohio. In connection with the LOI
Merger, the common stock of LOI was exchanged for aggregate consideration of
approximately $1,255,000 consisting of approximately $255,000 in cash and 77,670
shares of Company Common Stock. The cash portion of the consideration paid for
the assets pursuant to the LOI Merger Agreement was from the Company's line of
credit. The assets acquired from LOI pursuant to the LOI Merger includes certain
equipment used by LOI in the practice of medicine.
In connection with the OSAL Merger, BJCL Merger and LOI Merger, the Company
entered into a service agreement with Orthopaedic Institute of Ohio, Inc., a new
practice formed by the former shareholders of OSAL, BJCL, LOI, pursuant to which
the Company has agreed to provide management, administrative and development
services to the new practice. The
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Company will make available to the new practice the equipment it acquired in the
OSAL Merger, BJCL Merger and LOI Merger.
Effective September 10, 1997, the Company acquired, by purchase (the "WCOG
Acquisition"), one-half of the outstanding membership interests of West Central
Ohio Group, Ltd., an Ohio limited liability company ("WCOG"), pursuant to the
terms of a Membership Interest Purchase Agreement, dated September 10, 1997, by
and among the Company, James E. Bagenstose, M.D., David L. Davis, M.D., John J.
Duggan, M.D., James A. O'Neill, M.D., David B. Steiner, M.D., Roger L. Terry,
M.D., Michael J. Wieser, M.D. and Mark G. McDonald, M.D. (the "WCOG Acquisition
Agreement"). WCOG is in the process of constructing an orthopaedic specialty
hospital in Lima, Ohio (the "Hospital"). It is anticipated that the Hospital
will be operational in the spring of 1998. In connection with the WCOG
Acquisition, one-half of the membership interests of WCOG were exchanged for
$400,000 cash. The consideration paid for the membership interests purchased
pursuant to the WCOG Acquisition Agreement was from the Company's line of
credit.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(b) Pro Forma Financial Information (unaudited).
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 September 10, 1997, by and among the
Company, OSAL, Roger L. Terry, M.D., David L. Davis, M.D., David
B. Steiner, M.D., John J. Duggan, M.D., James A. O'Neill, M.D.
and Mark G. McDonald, M.D.
2.2 Merger Agreement, dated September 10, 1997, by and among the
Company, BJCL and Michael J. Wieser, M.D.
2.3 Merger Agreement, dated September 10, 1997, by and among the
Company, LOI and James E. Bagenstose, M.D.
2.4 Membership Interest Purchase Agreement, dated September 10, 1997,
by and among the Company, WCOA, James E. Bagenstose, M.D., David
L. Davis, M.D., John J. Duggan, M.D., James A. O'Neill, M.D.,
David B. Steiner, M.D., Roger L. Terry, M.D., Michael J. Wieser,
M.D. and Mark G. McDonald, 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
---------------------------------
D. Paul Davis
Senior Vice President - Finance
Dated: September 25, 1997
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EXHIBIT INDEX
Exhibit
Number Description
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2.1* Merger Agreement, dated September 10, 1997, by and among Specialty
Care Network, Inc., Orthopaedic Surgeons Associated of Lima, Inc.,
Roger L. Terry, M.D., David L. Davis, M.D., David B. Steiner, M.D.,
John J. Duggan, M.D., James A. O'Neill, M.D. and Mark G. McDonald,
M.D.
2.2* Merger Agreement dated September 10, 1997, by and among Specialty
Care Network, Inc., Bone & Joint Center of Lima, Inc. and Michael G.
Wieser, M.D.
2.3* Merger Agreement dated September 10, 1997, by and among Specialty
Care Network, Inc., Lima Orthopaedics, Inc. and James E. Bagenstose,
M.D.
2.4* Membership Interest Purchase Agreement, dated September 10, 1997, by
and among Specialty Care Network, Inc., James E. Bagenstose, M.D.,
David L. Davis, M.D., John J. Duggan, M.D., James A. O'Neill, M.D.,
David B. Steiner, M.D., Roger L. Terry, M.D., Michael J. Wieser, M.D
and Mark G. McDonald, M.D.
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* The exhibits and schedules to this document (which are listed on the
table of contents included in the document) have been omitted. The
Company agrees to furnish supplementally a copy of any of the omitted
exhibits and schedules to the Securities and Exchange Commission upon
request.
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MERGER AGREEMENT
BY AND AMONG
SPECIALTY CARE NETWORK, INC.,
ORTHOPEDIC SURGEONS ASSOCIATED OF LIMA, INC.,
ROGER L. TERRY, M.D.,
DAVID L. DAVIS, M.D.,
DAVID B. STEINER, M.D.,
JOHN J. DUGGAN, M.D.,
JAMES A. O'NEILL, M.D.,
and
MARK G. MCDONALD, M.D.
September 10, 1997
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TABLE OF CONTENTS
Page
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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 OSAL and OSAL Stockholders...........- 5 -
(a) Organization, Qualification, and Corporate Power.............- 5 -
(b) OSAL 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...............................................- 13 -
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5. Covenants.............................................................- 13 -
(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.....................................- 15 -
(l) Malpractice Insurance.......................................- 15 -
(m) Distribution of Excluded Assets.............................- 15 -
(n) Satisfaction of Indebtedness................................- 16 -
(o) Conversion into Business Corporation........................- 16 -
(p) Employee Benefit Plans......................................- 16 -
(q) Securities Laws Compliance..................................- 16 -
(r) Filing Final Tax Returns/Payment of Applicable Taxes........- 16 -
6. Conditions to Obligation to Close.....................................- 16 -
(a) Conditions to Obligation of SCN.............................- 16 -
(b) Conditions to Obligation of OSAL............................- 17 -
7. Items to be Delivered at or Prior to Closing..........................- 17 -
(a) By the OSAL Stockholders or OSAL............................- 17 -
(b) By SCN......................................................- 18 -
8. Termination...........................................................- 18 -
(a) Termination of Agreement....................................- 18 -
(b) Effect of Termination.......................................- 19 -
9. Indemnification.......................................................- 19 -
(a) Indemnification by the OSAL Stockholders....................- 19 -
(b) Notice to the OSAL Stockholders; Opportunity to Defend......- 19 -
(c) General Indemnification by SCN..............................- 19 -
(d) Notice to SCN; Opportunity to Defend........................- 19 -
(e) Right of Setoff.............................................- 20 -
10. Miscellaneous........................................................- 20 -
(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 -
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(h) Governing Law...............................................- 21 -
(i) Amendments and Waivers......................................- 21 -
(j) Severability................................................- 21 -
(k) Expenses....................................................- 21 -
(l) Construction................................................- 21 -
(n) Incorporation of Exhibits and Schedules.....................- 22 -
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MERGER AGREEMENT
THIS MERGER AGREEMENT (this "Agreement") is entered into this the 10th day
of September, 1997, by and among SPECIALTY CARE NETWORK, INC., a Delaware
corporation ("SCN"), ORTHOPEDIC SURGEONS ASSOCIATED OF LIMA, INC., an Ohio
professional corporation ("OSAL") and ROGER L. TERRY, M.D., DAVID L. DAVIS,
M.D., DAVID B. STEINER, M.D., JOHN J. DUGGAN, M.D., JAMES A. O'NEILL, M.D., and
MARK G. MCDONALD, M.D. (collectively, the "OSAL Stockholders"). SCN, OSAL and
the OSAL Stockholders are referred to collectively herein as the "Parties".
W I T N E S S E T H:
WHEREAS, SCN and OSAL have determined that it is desirable and in the best
interests of their respective corporations and stockholders that OSAL 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 OSAL 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 Ohio General
Corporation Law, 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.
"Code" has the meaning set forth in the recitals above.
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"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.
"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.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.2501, et seq., the Marine Protection, Research and Sanctuaries
Act of 1972, 33 U.S.C.A. ss.1401, et seq., the Occupational Safety and
Health Act, 29 U.S.C.A. 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.
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"Ohio Certificate of Merger" has the meaning set forth in Section 2(a)
below.
"Ohio General Corporation Law" means the Ohio General Corporation Law of
the State of Ohio, as amended.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice.
"OSAL" has the meaning set forth in the preface above.
"OSAL Share" means any share of the issued and outstanding common stock of
OSAL at the date of this Agreement.
"OSAL Stockholders" has the meaning set forth in the preface above.
"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, Orthopaedic Institute of Ohio, Inc., the OSAL
Stockholders, and certain other individuals 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, OSAL 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. OSAL shall enter into the Agreement and Plan of Merger
upon adoption of the Agreement and Plan of Merger by the Board of Directors of
OSAL and the OSAL Stockholders and the satisfaction or waiver of the conditions
precedent to OSAL'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 Certificate of
Merger in substantially the form attached hereto as Exhibit 2(a)(2) (the "Ohio
Certificate of Merger")shall be executed and filed with the Secretary of State
of the State of Ohio , 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
Ohio to effect the Merger. Thereafter, the separate corporate existence of OSAL
shall cease and OSAL 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 James Meredith, 101
North Elizabeth Street, Suite 607, Lima, Ohio, 45802 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) OSAL will deliver to SCN
the various certificates, instruments, and documents referred to in Section 7(a)
below, (ii) SCN will deliver to OSAL the various certificates, instruments, and
documents referred to in Section 7(b) below, (iii) SCN and OSAL will file with
the Secretary of State of the State of Delaware the Delaware Certificate of
Merger, and (iv) SCN and OSAL will file with the Secretary of State of the State
of Ohio the Ohio Certificate of Merger.
(d) Effect of Merger.
(i) General. The Merger shall become effective at the time (the
"Effective Time") SCN and OSAL file the Delaware Certificate of Merger with
the Secretary of State of the State of Delaware and file the Ohio
Certificate of Merger with the Secretary of State of the State of Ohio .
The Merger shall have the effect set forth in the Delaware General
Corporation Law and the Ohio Ohio General Corporation Law. 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 OSAL 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 OSAL Shares. At and as of the Effective Time, each
of the issued and outstanding OSAL Shares shall be converted into (A) the
right to receive Twenty-Thousand Seven Hundred Sixty and Seventeen
Hundredths (20,760.17) SCN Shares (the ratio of Four Hundred Ninety-Eight
Thousand Two Hundred Forty-Four SCN Shares divided by the total number of
OSAL Shares outstanding is referred to herein as the "Conversion Ratio")
and (B) the right to receive a cash payment of Forty-Six Thousand Four
Hundred Fifty-Three and 58/100 Dollars ($46,453.58). 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 OSAL
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 $12.875.
3. Representations and Warranties of OSAL and OSAL Stockholders. OSAL and
the OSAL Stockholders, 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. OSAL is a
professional corporation duly organized, validly existing, and in good standing
under the laws of the State of Ohio . OSAL 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
OSAL makes such qualification necessary. OSAL 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) OSAL Stockholder Interests and Capitalization. The capital stock of
OSAL is owned in the manner set forth in Section 3(b) of the Disclosure
Schedule. All of the issued and outstanding OSAL 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 OSAL 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 OSAL. As of the date of this Agreement, the authorized capital stock
of OSAL consists of 500 shares of OSAL common stock, of which 24 shares were
issued and outstanding.
(c) Authorization of Transaction. OSAL 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 OSAL and the OSAL 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 OSAL
is subject or any provision of the charter or bylaws of OSAL 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 OSAL 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). OSAL is not required to give any
notice to, make any filing
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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. OSAL 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. OSAL has furnished SCN with unaudited balance
sheets dated December 31, 1995 and 1996 and July 31, 1997 and unaudited income
statements for the twelve (12) month periods ending December 31, 1996, 1995 and
1994 and the seven (7) months ended July 31, 1997. Such financial statements,
including the notes thereto, except as indicated therein, were prepared on a
basis consistent with past accounting practices of OSAL and fairly present the
results of operations for the periods noted therein. The balance sheets of OSAL
delivered by OSAL to SCN fairly present the financial condition of OSAL at the
date thereof, and except as indicated therein, reflect all claims against and
all debts and liabilities of OSAL, fixed or contingent, as of the date thereof.
(g) Undisclosed Liabilities. OSAL 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. OSAL 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 OSAL 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 OSAL
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 OSAL'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 OSAL 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 OSAL;
or
(x) any other agreement (or group of related agreements) outside the
ordinary course of OSAL's business or operations the performance of which
involves consideration in excess of $15,000.
OSAL 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 OSAL 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, 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 OSAL Stockholders, OSAL and OSAL's professional employees
and all predecessor policies in effect since February 1, 1990. Neither OSAL, the
OSAL Stockholders, nor OSAL's professional employees have, in the last seven (7)
years, filed a written application for any insurance coverage relating to OSAL's
business or property which has been denied by an insurance agency or carrier.
OSAL, OSAL's professional employees and the OSAL 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 OSAL, OSAL's professional employees or the OSAL 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 OSAL, OSAL's professional
employees or the OSAL 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, OSAL 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 OSAL, (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 OSAL (the "Practice Assets"). OSAL 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. OSAL 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 OSAL or any
of the Practice Assets, or any physician or other health care professional
engaged or employed by OSAL, and to the best Knowledge of the OSAL Stockholders
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. OSAL and all physicians and other health care
professionals engaged or employed by OSAL have all permits and licenses required
by all applicable laws; have made all regulatory filings necessary for the
conduct of OSAL'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 OSAL required
by law to be filed have been timely filed, and OSAL 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 OSAL has set aside on its
books adequate reserves. There are no tax liens on any of OSAL's assets except
those with respect to taxes not yet due and payable. There are no pending tax
examinations of OSAL's tax returns nor has OSAL 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 up to and through the Effective Time, any
claims pending or asserted against OSAL for unpaid taxes by any federal, state
or other governmental body. OSAL has withheld from each payment made to
employees of OSAL 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 OSAL (including all employers
(whether or not incorporated) which by reason of common control are treated
together with OSAL and/or the OSAL Stockholders as a single employer within
the meaning of Section 414 of the Code) since September 2, 1974.
(ii) Status of Plans. OSAL 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. OSAL has not incurred any
liability to the Pension Benefit Guaranty Corporation
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("PBGC") in connection with any Employee Benefit Plan covering any
employees of OSAL 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 OSAL to the PBGC under Title IV
of ERISA which could reasonably be anticipated to result in any claims
being made against OSAL by the PBGC. OSAL 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 OSAL.
(iii) Contributions. Full payment has been made of all amounts which
OSAL is required, under applicable law or under any Employee Benefit Plan
or any agreement relating to any Employee Benefit Plan to which OSAL 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. OSAL 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. OSAL 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. OSAL 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. OSAL 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. OSAL has not received any notice that any
material patient, supplier, employee or associated physician intends to cease
doing business with OSAL.
(r) Compliance with Applicable Laws. OSAL 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 OSAL nor any physician associated with or
employed by OSAL has received payment or any remuneration whatsoever to induce
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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. OSAL 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 OSAL's employees.
(t) Environmental Matters.
(i) OSAL is in full compliance with all applicable Environmental Laws.
(ii) OSAL 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 OSAL.
(iii) OSAL 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) OSAL 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 OSAL or, with
respect to the Practice Assets or any property owned or leased by OSAL (b)
alleges that OSAL 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 OSAL, or (d) alleges that
OSAL is liable for any contamination of the environment, contamination of
any property owned or leased by OSAL, 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, OSAL has complied with all
Medical Waste Laws.
(u) Healthcare Compliance. OSAL 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. OSAL is in compliance in
all material respects with the requirements of all such third-party payors.
OSAL, the OSAL Stockholders, and OSAL's physician employees do not have any
financial relationship (whether investment interest, compensation
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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. OSAL, the OSAL Stockholders and persons and entities
providing professional services for OSAL 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. OSAL 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 OSAL 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, OSAL 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 OSAL is
located does not currently impose any restrictions or limitations on rates which
may be charged to private pay patients receiving services provided by OSAL. OSAL
does not have any rate appeal currently pending before any governmental
authority or any administrator of any third-party payor program. To the best
Knowledge of the OSAL Stockholders 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 OSAL
is located, which could have a material adverse effect on OSAL or may result in
the imposition of additional Medicaid, Medicare, charity, free care, welfare, or
other discounted or government assisted patients at OSAL or require OSAL to
obtain any necessary authorization which OSAL 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
OSAL, as being due to OSAL, (i) are valid, existing and to the best Knowledge of
the OSAL Stockholders are collectible (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 July 31, 1997, in the amount of accounts receivable or other debts
due OSAL, the allowances with respect thereto, or accounts payable of OSAL from
that reflected in the most recent balance sheet previously delivered by OSAL to
SCN.
(z) Guaranties. OSAL 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 OSAL, except as may be contained in financing documents or security
agreements listed in Section 3(i) of the Disclosure Schedule.
(bb) Tangible Assets. OSAL 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 OSAL nor the OSAL Stockholders owns, beneficially or
otherwise, any SCN Shares.
(ii) SCN Shares issuable in the Merger are being acquired by the OSAL
Stockholders solely for their own account for investment and not with a
view to the distribution thereof, and the OSAL 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 OSAL Stockholders represent and warrant as follows:
(A) The OSAL 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 OSAL
Stockholders requested, which additional information has been
received.
(B) In deciding to acquire SCN Shares pursuant to this Agreement,
the OSAL 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 (A)
above.
(C) Each OSAL 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 OSAL 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 OSAL 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 OSAL 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.
(E) The OSAL 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 OSAL Stockholders must 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
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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 of Rule
144, such disposition can be made only in accordance with the terms
and conditions of such Rule (a summary of which is attached hereto as
Exhibit 3 (cc)); (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 OSAL 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
OSAL 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 fifty million (50,000,000) SCN Shares and two
million (2,000,000) shares of preferred stock. 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.
(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.
5. Covenants. The Parties agree as follows with respect to the period from
and after the execution of this Agreement.
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(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. OSAL 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, OSAL 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) OSAL will not authorize or effect any change in its charter
documents or bylaws;
(ii) OSAL 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) OSAL 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) OSAL 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) OSAL will not impose any Security Interest upon any of its assets
outside the Ordinary Course of Business;
(vi) OSAL 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) OSAL will not make any change in employment terms for any of its
directors, officers or employees outside the Ordinary Course of Business;
and
(viii) OSAL will not commit to do any of the foregoing.
- 14 -
<PAGE>
(e) Further Acts and Assurances. OSAL and the OSAL 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, OSAL 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 OSAL during normal business hours. SCN will treat and hold as
such any confidential information it receives from OSAL in the course of the
reviews contemplated by this Section 5(e), 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 OSAL 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(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) October 31, 1997, or (ii) the
Effective Time, OSAL 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 OSAL (including any
acquisition structured as a merger, consolidation, or share exchange). OSAL
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 OSAL Stockholders agree to
cooperate with SCN in the collection of accounts receivable owned by OSAL 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 OSAL 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, OSAL 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 OSAL
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 OSAL in favor of the Merger and
voting as stockholders of OSAL in favor of the Merger at any meetings (or in any
action by written consent) required by the Ohio General Corporation Law.
(l) Malpractice Insurance. On or before the Effective Time, all physicians
and employees of OSAL must be covered by medical malpractice insurance and, if
required by SCN, medical malpractice tail insurance to cover prior occurrences
shall be procured by OSAL.
(m) Distribution of Excluded Assets. Prior to the Effective Time, OSAL
shall have distributed to the OSAL Stockholders all of the assets listed on
Schedule 5(m), which constitute the entirety of the assets owned by OSAL not
being acquired by SCN (the "Excluded Assets").
- 15 -
<PAGE>
(n) Satisfaction of Indebtedness. Prior to the Effective Time, OSAL 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 OSAL
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 OSAL, 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 OSAL, 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 OSAL; nor (iv) any liability
based upon or arising out of any tortious or wrongful actions of OSAL or any
Physician Owner, or any liability for the payment of any taxes imposed by law on
OSAL arising from or by reason of the transactions contemplated by this
Agreement. OSAL shall establish a reserve for income, excise or other taxes owed
by OSAL through the Effective Time, including but not limited to any such taxes
to be paid upon the collection of any cash basis accounts receivable existing on
the books of OSAL at the Effective Time.
(o) Conversion into Business Corporation. If required by the Ohio General
Corporation Law, prior to the Effective Time, the OSAL Stockholders shall have
caused the conversion of OSAL to a Ohio business corporation.
(p) Employee Benefit Plans. Prior to the Effective Time, all Employee
Benefit Plans shall be terminated in accordance with Applicable Law or
Orthopaedic Institute of Ohio, Inc. shall have taken whatever actions are
necessary to become the sponsor of any such plans.
(q) Securities Laws Compliance. No OSAL 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) Filing Final Tax Returns/Payment of Applicable Taxes. The OSAL
Stockholders shall cause to be filed all final tax returns for OSAL and shall
pay any and all taxes owed or accrued up to and through the Effective Time.
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) OSAL 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) OSAL 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 OSAL;
- 16 -
<PAGE>
(v) SCN shall have received the resignations, effective as of the
Closing, of each director and officer of OSAL 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 OSAL and/or the OSAL 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 OSAL 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 OSAL. The obligation of OSAL to consummate
the Merger is subject to satisfaction of the following conditions:
(i) This Agreement and the Merger shall have received the OSAL
director and OSAL Stockholders' approval required by the Ohio General
Corporation Law.
(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 OSAL.
OSAL 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 OSAL Stockholders or OSAL. The OSAL Stockholders or OSAL, as
applicable, shall execute and deliver to SCN, prior to or at the Closing:
(i) Certified resolutions of the directors and stockholders of OSAL
authorizing the execution of all documents and the consummation of all
transactions contemplated hereby;
(ii) The Ohio Certificate of Merger which shall be in the form
required by SCN's legal counsel;
- 17 -
<PAGE>
(iii) Stock Certificates representing ownership of all shares of OSAL,
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 OSAL and the OSAL
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 OSAL and the OSAL Stockholders have been
performed or complied with and all conditions to closing have been complied
with;
(vi) An opinion from OSAL'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 OSAL at or prior to the Closing:
(i) Stock Certificates representing the SCN Shares being issued to the
OSAL 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 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); and
(vi) Such other instruments as may be reasonably requested by OSAL or
the OSAL 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 OSAL
at any time prior to the Effective Time (A) in the event OSAL has breached
any representation, warranty, or covenant contained in this Agreement in
any material respect, SCN has notified OSAL 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 October 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 5(j); or
- 18 -
<PAGE>
(iii) OSAL 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, OSAL 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
October 31, 1997 by reason of the failure of any condition precedent under
Section 6(b) hereof (unless the failure results primarily from OSAL
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). Notwithstanding the foregoing, in the
event the Merger is not consummated (i) due to the fault of OSAL or the OSAL
Stockholders, or (ii) because SCN is dissatisfied with any disclosure made in
the Disclosure Schedule, then OSAL agrees to reimburse SCN for SCN's out of
pocket expenses, including but not limited to professional fees, related to the
proposed transaction.
9. Indemnification.
(a) Indemnification by the OSAL Stockholders. The OSAL Stockholders,
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 OSAL or the OSAL
Stockholders set forth in this Agreement, from any loss, liability or expense
resulting from or related to OSAL's operation of its business prior to the
Effective Time and from any loss, liability or expense resulting from or related
to any actions, suits, proceedings, hearings, and investigations set forth in
Section 3(m) of the Disclosure Schedule. The OSAL Stockholders shall not be
liable to SCN for any claims against the OSAL Stockholders under this Section
9(a) unless and until the aggregate of all claims against the OSAL 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.
(b) Notice to the OSAL Stockholders; Opportunity to Defend. SCN agrees to
give prompt notice to the OSAL 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 OSAL 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 OSAL Stockholders'
expense. The OSAL 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 OSAL 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 OSAL 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 OSAL
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 OSAL 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 OSAL 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.
- 19 -
<PAGE>
(e) Right of Setoff. In the event of any breach of warranty,
representation, covenant or agreement by OSAL or the OSAL Stockholders 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 OSAL Stockholders or Orthopedic Institute of Ohio, Inc. 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 OSAL
Stockholders 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 OSAL
Stockholders 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 OSAL Stockholders, 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 OSAL Stockholders 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 and Section 10.4.4 of the Service Agreement.
10. Miscellaneous.
(a) Survival. The representations and warranties of the OSAL Stockholders,
OSAL and SCN contained in this Agreement and the indemnifications contained
herein shall survive the Closing. Except as set forth in the following sentence
of this Agreement, no claim for indemnification with respect to any alleged
misrepresentation or breach of warranty or covenant may be made after two (2)
years following the Closing Date. SCN shall be entitled to indemnification for
claims for breaches of representations, warranties or covenants relating to
matters involving the payment of taxes (including penalties and/or interest
thereon) or reimbursement of any amounts to Medicare, Medicaid or third-party
payors (including penalties and/or interest thereon) for so long as the
applicable statute of limitations for collection of such amounts continues. 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:
- 20 -
<PAGE>
If to OSAL: Copy to:
David L. Davis, M.D. James E. Meredith, Esq.
1220 E. Elm Street, Suite 110 Cory, Meredith, Witter, Roush & Cheney
Lima, Ohio 45804 101 North Elizabeth Street, Suite 607
Facsimile: (419) 647-5128 Lima, Ohio 45802
Facsimile: (419) 228-5319
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. 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.
(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 OSAL stockholder approval will be subject
to the restrictions contained in the Ohio General Corporation Law. 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
- 21 -
<PAGE>
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 OSAL 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.
* * * * *
- 22 -
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
SPECIALTY CARE NETWORK, INC.
By:
---------------------------------------
Title:
-----------------------------------
ORTHOPEDIC SURGEONS ASSOCIATED OF LIMA, INC.
By:
---------------------------------------
Title:
-----------------------------------
------------------------------------------
Roger L. Terry, M.D.
------------------------------------------
David L. Davis, M.D.
------------------------------------------
David B. Steiner, M.D.
------------------------------------------
John J. Duggan, M.D.
------------------------------------------
James A. O'Neill, M.D.
------------------------------------------
Mark G. McDonald, M.D.
- 23 -
MERGER AGREEMENT
BY AND AMONG
SPECIALTY CARE NETWORK, INC.,
BONE & JOINT CENTER OF LIMA, INC.,
AND
MICHAEL J. WIESER, M.D.
September 10, 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 BJCL and BJCL Stockholder...........- 5 -
(a) Organization, Qualification, and Corporate Power............- 5 -
(b) BJCL 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..............................................- 13 -
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Page
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5. Covenants............................................................- 13 -
(a) General....................................................- 13 -
(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) Payment of Expenses........................................- 15 -
(k) Corporate Authorization....................................- 15 -
(l) Malpractice Insurance......................................- 15 -
(m) Distribution of Excluded Assets............................- 15 -
(n) Satisfaction of Indebtedness...............................- 15 -
(o) Conversion into Business Corporation.......................- 16 -
(p) Employee Benefit Plans.....................................- 16 -
(q) Securities Laws Compliance.................................- 16 -
(r) Filing Final Tax Returns/Payment of Applicable Taxes.......- 16 -
6. Conditions to Obligation to Close....................................- 16 -
(a) Conditions to Obligation of SCN............................- 16 -
(b) Conditions to Obligation of BJCL...........................- 17 -
7. Items to be Delivered at or Prior to Closing.........................- 17 -
(a) By the BJCL Stockholder or BJCL............................- 17 -
(b) By SCN.....................................................- 18 -
8. Termination..........................................................- 18 -
(a) Termination of Agreement...................................- 18 -
(b) Effect of Termination......................................- 19 -
9. Indemnification......................................................- 19 -
(a) Indemnification by the BJCL Stockholder....................- 19 -
(b) Notice to the BJCL Stockholder; 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 -
(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 -
ii
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Page
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(h) Governing Law..............................................- 21 -
(i) Amendments and Waivers.....................................- 21 -
(j) Severability...............................................- 21 -
(k) Expenses...................................................- 21 -
(l) Construction...............................................- 21 -
(n) Incorporation of Exhibits and Schedules....................- 22 -
iii
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MERGER AGREEMENT
THIS MERGER AGREEMENT (this "Agreement") is entered into this the 10th day
of September, 1997, by and among SPECIALTY CARE NETWORK, INC., a Delaware
corporation ("SCN"), BONE & JOINT CENTER OF LIMA, INC., an Ohio professional
corporation ("BJCL") and MICHAEL J. WIESER, M.D. (the "BJCL Stockholder"). SCN,
BJCL and the BJCL Stockholder are referred to collectively herein as the
"Parties".
W I T N E S S E T H:
WHEREAS, SCN and BJCL have determined that it is desirable and in the best
interests of their respective corporations and stockholders that BJCL 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 BJCL 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 Ohio General
Corporation Law, 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).
"BJCL" has the meaning set forth in the preface above.
"BJCL Share" means any share of the issued and outstanding common stock of
BJCL at the date of this Agreement.
"BJCL Stockholder" has the meaning set forth in the preface above.
"Closing Date" has the meaning set forth in Section 2(b) below.
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"Closing" has the meaning set forth in Section 2(b) below.
"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.
"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.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.2501, et seq., the Marine Protection, Research and Sanctuaries
Act of 1972, 33 U.S.C.A. ss.1401, et seq., the Occupational Safety and
Health Act, 29 U.S.C.A. 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.
"Merger" has the meaning set forth in Section 2(a) below.
"Ohio Certificate of Merger" has the meaning set forth in Section 2(a)
below.
"Ohio General Corporation Law" means the General Corporation Law of the
State of Ohio , as amended.
"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, Orthopaedic Institute of Ohio, Inc., the BJCL
Stockholder, and certain other individuals 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.
- 3 -
<PAGE>
2. Basic Transaction.
(a) The Merger. On and subject to the terms and conditions of this
Agreement, BJCL 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. BJCL shall enter into the Agreement and Plan of Merger
upon adoption of the Agreement and Plan of Merger by the Board of Directors of
BJCL and the BJCL Stockholder and the satisfaction or waiver of the conditions
precedent to BJCL'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 Certificate of
Merger in substantially the form attached hereto as Exhibit 2(a)(2) (the "Ohio
Certificate of Merger")shall be executed and filed with the Secretary of State
of the State of Ohio, 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
Ohio to effect the Merger. Thereafter, the separate corporate existence of BJCL
shall cease and BJCL 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 James Meredith, 101
North Elizabeth Street, Suite 607, Lima, Ohio 45802, 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) BJCL will deliver to SCN
the various certificates, instruments, and documents referred to in Section 7(a)
below, (ii) SCN will deliver to BJCL the various certificates, instruments, and
documents referred to in Section 7(b) below, (iii) SCN and BJCL will file with
the Secretary of State of the State of Delaware the Delaware Certificate of
Merger, and (iv) SCN and BJCL will file with the Secretary of State of the State
of Ohio the Ohio Certificate of Merger.
(d) Effect of Merger.
(i) General. The Merger shall become effective at the time (the
"Effective Time") SCN and BJCL file the Delaware Certificate of Merger with
the Secretary of State of the State of Delaware and file the Ohio
Certificate of Merger with the Secretary of State of the State of Ohio .
The Merger shall have the effect set forth in the Delaware General
Corporation Law and the Ohio Ohio General Corporation Law. 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 BJCL 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).
- 4 -
<PAGE>
(v) Conversion of BJCL Shares. At and as of the Effective Time, each
of the issued and outstanding BJCL Shares shall be converted into the right
to receive nine hundred seventy-four and 73/100 (974.73) SCN Shares (the
ratio of ninety-seven thousand four hundred seventy-three SCN Shares
divided by the total number of BJCL 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 BJCL 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 $12.875.
3. Representations and Warranties of BJCL and BJCL Stockholder. BJCL and
the BJCL Stockholder, 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. BJCL is a
professional corporation duly organized, validly existing, and in good standing
under the laws of the State of Ohio. BJCL 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 BJCL
makes such qualification necessary. BJCL 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) BJCL Stockholder Interests and Capitalization. The capital stock of
BJCL is owned in the manner set forth in Section 3(b) of the Disclosure
Schedule. All of the issued and outstanding BJCL 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 BJCL 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 BJCL. As of the date of this Agreement, the authorized capital stock
of BJCL consists of 750 shares of BJCL common stock, of which 100 shares were
issued and outstanding.
(c) Authorization of Transaction. BJCL 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 BJCL and the BJCL 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 BJCL
is subject or any provision of the charter or bylaws of BJCL 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 BJCL 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). BJCL is not required to give any
notice to, make any filing
- 5 -
<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. BJCL 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. BJCL has furnished SCN with unaudited balance
sheets dated December 31, 1995 and 1996 and July 31, 1997 and unaudited income
statements for the twelve (12) month periods ending December 31, 1996, 1995 and
1994 and the seven (7) months ended July 31, 1997. Such financial statements,
including the notes thereto, except as indicated therein, were prepared on a
basis consistent with past accounting practices of BJCL and fairly present the
results of operations for the periods noted therein. The balance sheets of BJCL
delivered by BJCL to SCN fairly present the financial condition of BJCL at the
date thereof, and except as indicated therein, reflect all claims against and
all debts and liabilities of BJCL, fixed or contingent, as of the date thereof.
(g) Undisclosed Liabilities. BJCL 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. BJCL 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 BJCL 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 BJCL
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 BJCL'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;
- 6 -
<PAGE>
(viii) any agreement pursuant to which BJCL 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 BJCL;
or
(x) any other agreement (or group of related agreements) outside the
ordinary course of BJCL's business or operations the performance of which
involves consideration in excess of $15,000.
BJCL 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 BJCL 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, 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 BJCL Stockholder, BJCL and BJCL's professional employees
and all predecessor policies in effect since February 1, 1990. Neither BJCL, the
BJCL Stockholder, nor BJCL's professional employees have, in the last seven (7)
years, filed a written application for any insurance coverage relating to BJCL's
business or property which has been denied by an insurance agency or carrier.
BJCL, BJCL's professional employees and the BJCL 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 BJCL, BJCL's professional employees or the BJCL 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 BJCL, BJCL's
professionalemployees or the BJCL 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, BJCL 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 BJCL, (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.
- 7 -
<PAGE>
(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 BJCL (the "Practice Assets"). BJCL 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. BJCL 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 BJCL or any
of the Practice Assets, or any physician or other health care professional
engaged or employed by BJCL, and to the best Knowledge of the OSAL stockholders
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. BJCL and all physicians and other health care
professionals engaged or employed by BJCL have all permits and licenses required
by all applicable laws; have made all regulatory filings necessary for the
conduct of BJCL'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 BJCL required
by law to be filed have been timely filed, and BJCL 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 BJCL has set aside on its
books adequate reserves. There are no tax liens on any of BJCL's assets except
those with respect to taxes not yet due and payable. There are no pending tax
examinations of BJCL's tax returns nor has BJCL 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 up to and through the Effective Time, any
claims pending or asserted against BJCL for unpaid taxes by any federal, state
or other governmental body. BJCL has withheld from each payment made to
employees of BJCL 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 BJCL (including all employers
(whether or not incorporated) which by reason of common control are treated
together with BJCL and/or the BJCL Stockholder as a single employer within
the meaning of Section 414 of the Code) since September 2, 1974.
(ii) Status of Plans. BJCL 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. BJCL has not incurred any
liability to the Pension Benefit Guaranty Corporation
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("PBGC") in connection with any Employee Benefit Plan covering any
employees of BJCL 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 BJCL to the PBGC under Title IV
of ERISA which could reasonably be anticipated to result in any claims
being made against BJCL by the PBGC. BJCL 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 BJCL.
(iii) Contributions. Full payment has been made of all amounts which
BJCL is required, under applicable law or under any Employee Benefit Plan
or any agreement relating to any Employee Benefit Plan to which BJCL 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. BJCL 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. BJCL 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. BJCL 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. BJCL 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. BJCL has not received any notice that any
material patient, supplier, employee or associated physician intends to cease
doing business with BJCL.
(r) Compliance with Applicable Laws. BJCL 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 BJCL nor any physician associated with or
employed by BJCL has received payment or any remuneration whatsoever to induce
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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. BJCL 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 BJCL's employees.
(t) Environmental Matters.
(i) BJCL is in full compliance with all applicable Environmental Laws.
(ii) BJCL 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 BJCL.
(iii) BJCL 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) BJCL 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 BJCL or, with
respect to the Practice Assets or any property owned or leased by BJCL (b)
alleges that BJCL 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 BJCL, or (d) alleges that
BJCL is liable for any contamination of the environment, contamination of
any property owned or leased by BJCL, 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, BJCL has complied with all
Medical Waste Laws.
(u) Healthcare Compliance. BJCL 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. BJCL is in compliance in
all material respects with the requirements of all such third-party payors.
BJCL, the BJCL Stockholder, and BJCL's physician employees do not have any
financial relationship (whether investment interest, compensation
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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. BJCL, the BJCL Stockholder and persons and entities
providing professional services for BJCL 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. BJCL 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 BJCL 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, BJCL 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 BJCL is
located does not currently impose any restrictions or limitations on rates which
may be charged to private pay patients receiving services provided by BJCL. BJCL
does not have any rate appeal currently pending before any governmental
authority or any administrator of any third-party payor program. To the best
Knowledge of the OSAL Stockholders 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 BJCL
is located, which could have a material adverse effect on BJCL or may result in
the imposition of additional Medicaid, Medicare, charity, free care, welfare, or
other discounted or government assisted patients at BJCL or require BJCL to
obtain any necessary authorization which BJCL 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
BJCL, as being due to BJCL, (i) are valid, existing and to the best Knowledge of
the OSAL Stockholders are collectible (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 July 31, 1997, in the amount of accounts receivable or other debts
due BJCL, the allowances with respect thereto, or accounts payable of BJCL from
that reflected in the most recent balance sheet previously delivered by BJCL to
SCN.
(z) Guaranties. BJCL 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 BJCL, except as may be contained in financing documents or security
agreements listed in Section 3(i) of the Disclosure Schedule.
(bb) Tangible Assets. BJCL 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 BJCL nor the BJCL Stockholder owns, beneficially or
otherwise, any SCN Shares.
(ii) SCN Shares issuable in the Merger are being acquired by the BJCL
Stockholder solely for his own account for investment and not with a view
to the distribution thereof, and the BJCL 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 BJCL Stockholder represents and warrants as follows:
(A) The BJCL 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 BJCL
Stockholder requested, which additional information has been received.
(B) In deciding to acquire SCN Shares pursuant to this Agreement,
the BJCL 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 (A)
above.
(C) The BJCL 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 BJCL Stockholder, either alone or with
his representatives, has such knowledge and experience in financial
and business matters that he is capable of evaluating the merits and
risks of the Merger.
(D) The BJCL Stockholder understands and acknowledges that the
investment in the SCN Shares is a speculative investment which
involves a high degree risk of loss of the BJCL 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.
(E) The BJCL 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 BJCL Stockholder must 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
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<PAGE>
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 (a summary of which is attached hereto as
Exhibit 3(cc)); (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 BJCL 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
BJCL 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 fifty million (50,000,000) SCN Shares and two
million (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.
(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.
5. Covenants. The Parties agree as follows with respect to the period from
and after the execution of this Agreement.
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(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. BJCL 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, BJCL 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) BJCL will not authorize or effect any change in its charter
documents or bylaws;
(ii) BJCL 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) BJCL 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) BJCL 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) BJCL will not impose any Security Interest upon any of its assets
outside the Ordinary Course of Business;
(vi) BJCL 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) BJCL will not make any change in employment terms for any of its
directors, officers or employees outside the Ordinary Course of Business;
and
(viii) BJCL will not commit to do any of the foregoing.
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<PAGE>
(e) Further Acts and Assurances. BJCL and the BJCL 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, BJCL 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 BJCL during normal business hours. SCN will treat and hold as
such any confidential information it receives from BJCL in the course of the
reviews contemplated by this Section 5(e), 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 BJCL 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(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) October 31, 1997, or (ii) the
Effective Time, BJCL 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 BJCL (including any
acquisition structured as a merger, consolidation, or share exchange). BJCL
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 BJCL Stockholder agrees to
cooperate with SCN in the collection of accounts receivable owned by BJCL 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 BJCL 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, BJCL 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 BJCL
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 BJCL in favor of the Merger and
voting as stockholders of BJCL in favor of the Merger at any meetings (or in any
action by written consent) required by the Ohio General Corporation Law.
(l) Malpractice Insurance. On or before the Effective Time, all physicians
and employees of BJCL must be covered by medical malpractice insurance and, if
required by SCN, medical malpractice tail insurance to cover prior occurrences
shall be procured by BJCL.
(m) Distribution of Excluded Assets. Prior to the Effective Time, BJCL
shall have distributed to the BJCL Stockholder all of the assets listed on
Schedule 5(m), which constitute the entirety of the assets owned by BJCL not
being acquired by SCN (the "Excluded Assets").
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(n) Satisfaction of Indebtedness. Prior to the Effective Time, BJCL 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 BJCL
Stockholder. 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 BJCL, 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 BJCL, 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 BJCL; nor (iv) any liability
based upon or arising out of any tortious or wrongful actions of BJCL or any
Physician Owner, or any liability for the payment of any taxes imposed by law on
BJCL arising from or by reason of the transactions contemplated by this
Agreement. BJCL shall establish a reserve for income, excise or other taxes owed
by BJCL through the Effective Time, including but not limited to any such taxes
to be paid upon the collection of any cash basis accounts receivable existing on
the books of BJCL at the Effective Time.
(o) Conversion into Business Corporation. If required by the Ohio General
Corporation Law, prior to the Effective Time, the BJCL Stockholder shall have
caused the conversion of BJCL to an Ohio business corporation.
(p) Employee Benefit Plans. Prior to the Effective Time, all Employee
Benefit Plans shall be terminated in accordance with Applicable Law or
Orthopaedic Institute of Ohio, Inc. shall have taken whatever actions are
necessary to become the sponsor of any such plans.
(q) Securities Laws Compliance. The BJCL Stockholder shall not 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) Filing Final Tax Returns/Payment of Applicable Taxes. The BJCL
Stockholder shall cause to be filed all final tax returns for BJCL and shall pay
any and all taxes owed or accrued up to and through the Effective Time.
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) BJCL 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) BJCL 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 BJCL;
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(v) SCN shall have received the resignations, effective as of the
Closing, of each director and officer of BJCL 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 BJCL and/or the BJCL 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 BJCL 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; 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 BJCL. The obligation of BJCL to consummate
the Merger is subject to satisfaction of the following conditions:
(i) This Agreement and the Merger shall have received the BJCL
director and BJCL Stockholder' approval required by the Ohio General
Corporation Law.
(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 BJCL.
BJCL 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 BJCL Stockholder or BJCL. The BJCL Stockholder or BJCL, as
applicable, shall execute and deliver to SCN, prior to or at the Closing:
(i) Certified resolutions of the directors and stockholders of BJCL
authorizing the execution of all documents and the consummation of all
transactions contemplated hereby;
(ii) The Ohio Certificate of Merger which shall be in the form
required by SCN's legal counsel;
- 17 -
<PAGE>
(iii) Stock Certificates representing ownership of all shares of BJCL,
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 BJCL and the BJCL
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 BJCL and the BJCL Stockholder have been
performed or complied with and all conditions to closing have been complied
with;
(vi) An opinion from BJCL'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 BJCL at or prior to the Closing:
(i) Stock Certificates representing the SCN Shares being issued to the
BJCL 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); and
(vi) Such other instruments as may be reasonably requested by BJCL or
the BJCL 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 BJCL
at any time prior to the Effective Time (A) in the event BJCL has breached
any representation, warranty, or covenant contained in this Agreement in
any material respect, SCN has notified BJCL 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 October 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 5(j); or
- 18 -
<PAGE>
(iii) BJCL 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, BJCL 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
October 31, 1997 by reason of the failure of any condition precedent under
Section 6(b) hereof (unless the failure results primarily from BJCL
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). Notwithstanding the foregoing, in the
event the Merger is not consummated (i) due to the fault of BJCL or the BJCL
Stockholder, or (ii) because SCN is dissatisfied with any disclosure made in the
Disclosure Schedule, then BJCL agrees to reimburse SCN for SCN's out of pocket
expenses, including but not limited to professional fees, related to the
proposed transaction.
9. Indemnification.
(a) Indemnification by the BJCL Stockholder. The BJCL 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 BJCL or the BJCL Stockholder set forth
in this Agreement, from any loss, liability or expense resulting from or related
to BJCL's operation of its business prior to the Effective Time and from any
loss, liability or expense resulting from or related to any actions, suits,
proceedings, hearings and investigations set forth in Section 3(m) of the
Disclosure Schedule. The BJCL Stockholder shall not be liable to SCN for any
claims against the BJCL Stockholder under this Section 9(a) unless and until the
aggregate of all claims against the BJCL 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 BJCL Stockholder; Opportunity to Defend. SCN agrees to
give prompt notice to the BJCL 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 BJCL 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 BJCL Stockholder's expense. The BJCL 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 BJCL 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 BJCL 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 BJCL 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 BJCL 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 BJCL 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.
- 19 -
<PAGE>
(e) Right of Setoff. In the event of any breach of warranty,
representation, covenant or agreement by BJCL or the BJCL 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 BJCL Stockholder or Orthopedic Institute of Ohio, Inc. 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 BJCL
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 BJCL
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 BJCL 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 BJCL 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 and Section 10.4.4 of the Service Agreement.
10. Miscellaneous.
(a) Survival. The representations and warranties of the BJCL Stockholder,
BJCL and SCN contained in this Agreement and the indemnifications contained
herein shall survive the Closing. Except as set forth in the following sentence
of this Agreement, no claim for indemnification with respect to any alleged
misrepresentation or breach of warranty or covenant may be made after two (2)
years following the Closing Date. SCN shall be entitled to indemnification for
claims for breaches of representations, warranties or covenants relating to
matters involving the payment of taxes (including penalties and/or interest
thereon) or reimbursement of any amounts to Medicare, Medicaid or third-party
payors (including penalties and/or interest thereon) for so long as the
applicable statute of limitations for collection of such amounts continues. 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:
- 20 -
<PAGE>
If to BJCL or the BJCL Stockholder: Copy to:
Michael J. Wieser, M.D. James E. Meredith, Esq.
P.O. Box 5008 Cory, Meredith, Witter, Roush & Cheney
Lima, Ohio 45802 101 North Elizabeth Street Suite 607
Lima, Ohio 45802
Facsimile: (419) 228-5319
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. 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.
(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 BJCL stockholder approval will be subject
to the restrictions contained in the Ohio General Corporation Law. 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
- 21 -
<PAGE>
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 BJCL 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.
SPECIALTY CARE NETWORK, INC.
By:
------------------------------
Title:
---------------------------
BONE & JOINT CENTER OF LIMA, INC.
By:
------------------------------
Title:
---------------------------
---------------------------------
Michael J. Wieser, M.D.
- 22 -
MERGER AGREEMENT
BY AND AMONG
SPECIALTY CARE NETWORK, INC.,
LIMA ORTHOPEDICS, INC.,
AND
JAMES E. BAGENSTOSE, M.D.
September 10, 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 LOI and LOI Stockholder.............- 5 -
(a) Organization, Qualification, and Corporate Power............- 5 -
(b) LOI 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..............................................- 13 -
i
<PAGE>
Page
----
5. Covenants............................................................- 13 -
(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....................................- 15 -
(l) Malpractice Insurance......................................- 15 -
(m) Distribution of Excluded Assets............................- 15 -
(n) Satisfaction of Indebtedness...............................- 16 -
(o) Conversion into Business Corporation.......................- 16 -
(p) Employee Benefit Plans.....................................- 16 -
(q) Securities Laws Compliance.................................- 16 -
(r) Filing Final Tax Returns/Payment of Applicable Taxes.......- 16 -
6. Conditions to Obligation to Close....................................- 16 -
(a) Conditions to Obligation of SCN............................- 16 -
(b) Conditions to Obligation of LOI............................- 17 -
7. Items to be Delivered at or Prior to Closing.........................- 17 -
(a) By the LOI Stockholder or LOI..............................- 17 -
(b) By SCN.....................................................- 18 -
8. Termination..........................................................- 18 -
(a) Termination of Agreement...................................- 18 -
(b) Effect of Termination......................................- 19 -
9. Indemnification......................................................- 19 -
(a) Indemnification by the LOI Stockholder.....................- 19 -
(b) Notice to the LOI Stockholder; Opportunity to Defend.......- 19 -
(c) General Indemnification by SCN.............................- 19 -
(d) Notice to SCN; Opportunity to Defend.......................- 19 -
(e) Right of Setoff............................................- 20 -
10. Miscellaneous.......................................................- 20 -
(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 -
ii
<PAGE>
Page
----
(h) Governing Law..............................................- 21 -
(i) Amendments and Waivers.....................................- 21 -
(j) Severability...............................................- 21 -
(k) Expenses...................................................- 21 -
(l) Construction...............................................- 21 -
(n) Incorporation of Exhibits and Schedules....................- 22 -
iii
<PAGE>
MERGER AGREEMENT
THIS MERGER AGREEMENT (this "Agreement") is entered into this the 10th day
of September, 1997, by and among SPECIALTY CARE NETWORK, INC., a Delaware
corporation ("SCN"), LIMA ORTHOPEDICS, INC., an Ohio professional corporation
("LOI") and JAMES E. BAGENSTOSE, M.D. (collectively, the "LOI Stockholder").
SCN, LOI and the LOI Stockholder are referred to collectively herein as the
"Parties".
W I T N E S S E T H:
WHEREAS, SCN and LOI have determined that it is desirable and in the best
interests of their respective corporations and stockholders that LOI 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 LOI 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 Ohio General
Corporation Law, 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.
"Code" has the meaning set forth in the recitals above.
"Conversion Ratio" has the meaning set forth in Section 2(d)(v) below.
- 1 -
<PAGE>
"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.
"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.
"LOI" has the meaning set forth in the preface above.
"LOI Share" means any share of the issued and outstanding common stock of
LOI at the date of this Agreement.
"LOI Stockholder" has the meaning set forth in the preface above.
"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.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.2501, et seq., the Marine Protection, Research and Sanctuaries
Act of 1972, 33 U.S.C.A. ss.1401, et seq., the Occupational Safety and
Health Act, 29 U.S.C.A. 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.
"Ohio Certificate of Merger" has the meaning set forth in Section 2(a)
below.
"Ohio General Corporation Law" means the General Corporation Law of the
State of Ohio , as amended.
"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, Orthopaedic Institute of Ohio, Inc., the LOI
Stockholder, and certain other individuals 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.
- 3 -
<PAGE>
2. Basic Transaction.
(a) The Merger. On and subject to the terms and conditions of this
Agreement, LOI 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. LOI shall enter into the Agreement and Plan of Merger
upon adoption of the Agreement and Plan of Merger by the Board of Directors of
LOI and the LOI Stockholder and the satisfaction or waiver of the conditions
precedent to LOI'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 Certificate of
Merger in substantially the form attached hereto as Exhibit 2(a)(2) (the "Ohio
Certificate of Merger")shall be executed and filed with the Secretary of State
of the State of Ohio , 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
Ohio to effect the Merger. Thereafter, the separate corporate existence of LOI
shall cease and LOI 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 James Meredith, 101
North Elizabeth Street, Suite 607, Lima, Ohio, 45802 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) LOI will deliver to SCN the
various certificates, instruments, and documents referred to in Section 7(a)
below, (ii) SCN will deliver to LOI the various certificates, instruments, and
documents referred to in Section 7(b) below, (iii) SCN and LOI will file with
the Secretary of State of the State of Delaware the Delaware Certificate of
Merger, and (iv) SCN and LOI will file with the Secretary of State of the State
of Ohio the Ohio Certificate of Merger.
(d) Effect of Merger.
(i) General. The Merger shall become effective at the time (the
"Effective Time") SCN and LOI file the Delaware Certificate of Merger with
the Secretary of State of the State of Delaware and file the Ohio
Certificate of Merger with the Secretary of State of the State of Ohio .
The Merger shall have the effect set forth in the Delaware General
Corporation Law and the Ohio Ohio General Corporation Law. 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 LOI 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 LOI Shares. At and as of the Effective Time, each of
the issued and outstanding LOI Shares shall be converted into (A) the right
to receive seven hundred seventy six and 70/100 (776.70) SCN Shares (the
ratio of seventy-seven thousand six hundred seventy SCN Shares divided by
the total number of LOI Shares outstanding is referred to herein as the
"Conversion Ratio") and (B) the right to receive a cash payment of Two
Thousand Five Hundred Forty-Nine and 62/100 Dollars ($2,549.62). 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 LOI 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 $12.875.
3. Representations and Warranties of LOI and LOI Stockholder. LOI and the
LOI Stockholder, 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. LOI is a professional
corporation duly organized, validly existing, and in good standing under the
laws of the State of Ohio. LOI 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 LOI makes such
qualification necessary. LOI 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) LOI Stockholder Interests and Capitalization. The capital stock of LOI
is owned in the manner set forth in Section 3(b) of the Disclosure Schedule. All
of the issued and outstanding LOI 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 LOI
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 LOI. As of the date of
this Agreement, the authorized capital stock of LOI consists of five hundred
(500) shares of LOI common stock, of which one hundred (100) shares were issued
and outstanding.
(c) Authorization of Transaction. LOI 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 LOI and the LOI 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 LOI
is subject or any provision of the charter or bylaws of LOI 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 LOI 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). LOI is not required to give any
notice to, make any filing
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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. LOI 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. LOI has furnished SCN with unaudited balance
sheets dated December 31, 1995 and 1996 and July 31, 1997 and unaudited income
statements for the twelve (12) month periods ending December 31, 1996, 1995 and
1994 and the seven (7) months ended July 31, 1997. Such financial statements,
including the notes thereto, except as indicated therein, were prepared on a
basis consistent with past accounting practices of LOI and fairly present the
results of operations for the periods noted therein. The balance sheets of LOI
delivered by LOI to SCN fairly present the financial condition of LOI at the
date thereof, and except as indicated therein, reflect all claims against and
all debts and liabilities of LOI, fixed or contingent, as of the date thereof.
(g) Undisclosed Liabilities. LOI 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. LOI 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 LOI 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 LOI
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 LOI'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 LOI 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 LOI;
or
(x) any other agreement (or group of related agreements) outside the
ordinary course of LOI's business or operations the performance of which
involves consideration in excess of $15,000.
LOI 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 LOI 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, 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 LOI Stockholder, LOI and LOI's professional employees and
all predecessor policies in effect since February 1, 1990. Neither LOI, the LOI
Stockholder, nor LOI's professional employees have, in the last seven (7) years,
filed a written application for any insurance coverage relating to LOI's
business or property which has been denied by an insurance agency or carrier.
LOI, LOI's professional employees and the LOI 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 LOI, LOI's professionalemployees or the LOI 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 LOI, LOI's professionalemployees or the
LOI 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, LOI 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 LOI, (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 LOI (the "Practice Assets"). LOI 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. LOI 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 LOI or any
of the Practice Assets, or any physician or other health care professional
engaged or employed by LOI, and to the best Knowledge of the LOI Stockholder
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. LOI and all physicians and other health care
professionals engaged or employed by LOI have all permits and licenses required
by all applicable laws; have made all regulatory filings necessary for the
conduct of LOI'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 LOI required
by law to be filed have been timely filed, and LOI 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 LOI has set aside on its books
adequate reserves. There are no tax liens on any of LOI's assets except those
with respect to taxes not yet due and payable. There are no pending tax
examinations of LOI's tax returns nor has LOI 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 up to and through the Effective Time, any claims
pending or asserted against LOI for unpaid taxes by any federal, state or other
governmental body. LOI has withheld from each payment made to employees of LOI
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 LOI (including all employers
(whether or not incorporated) which by reason of common control are treated
together with LOI and/or the LOI Stockholder as a single employer within
the meaning of Section 414 of the Code) since September 2, 1974.
(ii) Status of Plans. LOI 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. LOI has not incurred any
liability to the Pension Benefit Guaranty Corporation ("PBGC")
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in connection with any Employee Benefit Plan covering any employees of LOI
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 LOI to the PBGC under Title IV of ERISA which could
reasonably be anticipated to result in any claims being made against LOI by
the PBGC. LOI 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 LOI.
(iii) Contributions. Full payment has been made of all amounts which
LOI is required, under applicable law or under any Employee Benefit Plan or
any agreement relating to any Employee Benefit Plan to which LOI 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. LOI 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. LOI 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. LOI 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. LOI 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. LOI has not received any notice that any
material patient, supplier, employee or associated physician intends to cease
doing business with LOI.
(r) Compliance with Applicable Laws. LOI 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 LOI nor any physician associated with or
employed by LOI has received payment or any remuneration whatsoever to induce or
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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. LOI 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 LOI's employees.
(t) Environmental Matters.
(i) LOI is in full compliance with all applicable Environmental Laws.
(ii) LOI 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 LOI.
(iii) LOI 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) LOI 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 LOI or, with
respect to the Practice Assets or any property owned or leased by LOI (b)
alleges that LOI 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 LOI, or (d) alleges that LOI
is liable for any contamination of the environment, contamination of any
property owned or leased by LOI, 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, LOI has complied with all
Medical Waste Laws.
(u) Healthcare Compliance. LOI 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. LOI is in compliance in
all material respects with the requirements of all such third-party payors. LOI,
the LOI Stockholder, and LOI's physician employees do not have any financial
relationship (whether investment interest, compensation interest,
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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. LOI, the LOI Stockholder and persons and entities
providing professional services for LOI 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. LOI 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 LOI 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, LOI 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 LOI is
located does not currently impose any restrictions or limitations on rates which
may be charged to private pay patients receiving services provided by LOI. LOI
does not have any rate appeal currently pending before any governmental
authority or any administrator of any third-party payor program. To the best
Knowledge of the LOI Stockholder 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 LOI is
located, which could have a material adverse effect on LOI or may result in the
imposition of additional Medicaid, Medicare, charity, free care, welfare, or
other discounted or government assisted patients at LOI or require LOI to obtain
any necessary authorization which LOI 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
LOI, as being due to LOI, (i) are valid, existing and to the best Knowledge of
the LOI Stockholder are collectible (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 July 31, 1997, in the amount of accounts receivable or other debts
due LOI, the allowances with respect thereto, or accounts payable of LOI from
that reflected in the most recent balance sheet previously delivered by LOI to
SCN.
(z) Guaranties. LOI 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 LOI, except as may be contained in financing documents or security
agreements listed in Section 3(i) of the Disclosure Schedule.
(bb) Tangible Assets. LOI 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 LOI nor the LOI Stockholder owns, beneficially or
otherwise, any SCN Shares.
(ii) SCN Shares issuable in the Merger are being acquired by the LOI
Stockholder solely for his own account for investment and not with a view
to the distribution thereof, and the LOI 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 LOI Stockholder represents and warrants as follows:
(A) The LOI 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 LOI
Stockholder requested, which additional information has been received.
(B) In deciding to acquire SCN Shares pursuant to this Agreement,
the LOI 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 (A)
above.
(C) The LOI 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 LOI Stockholder, either alone or with
his representatives, has such knowledge and experience in financial
and business matters that he is capable of evaluating the merits and
risks of the Merger.
(D) The LOI Stockholder understands and acknowledges that the
investment in the SCN Shares is a speculative investment which
involves a high degree risk of loss of the LOI 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.
(E) The LOI 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 LOI Stockholder must 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
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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 of Rule
144, such disposition can be made only in accordance with the terms
and conditions of such Rule (a summary of which is attached hereto as
Exhibit 3 (cc)); (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 LOI 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
LOI 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 fifty million (50,000,000) SCN Shares and two
million (2,000,000) shares of preferred stock. 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.
(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.
5. Covenants. The Parties agree as follows with respect to the period from
and after the execution of this Agreement.
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<PAGE>
(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. LOI 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, LOI 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) LOI will not authorize or effect any change in its charter
documents or bylaws;
(ii) LOI 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) LOI 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) LOI 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) LOI will not impose any Security Interest upon any of its assets
outside the Ordinary Course of Business;
(vi) LOI 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) LOI will not make any change in employment terms for any of its
directors, officers or employees outside the Ordinary Course of Business;
and
(viii) LOI will not commit to do any of the foregoing.
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<PAGE>
(e) Further Acts and Assurances. LOI and the LOI 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, LOI 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 LOI during normal business hours. SCN will treat and hold as
such any confidential information it receives from LOI in the course of the
reviews contemplated by this Section 5(e), 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 LOI 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(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) October 31, 1997, or (ii) the
Effective Time, LOI 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 LOI (including any
acquisition structured as a merger, consolidation, or share exchange). LOI 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 LOI Stockholder agrees to
cooperate with SCN in the collection of accounts receivable owned by LOI 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 LOI 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, LOI 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 LOI
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 LOI in favor of the Merger and
voting as stockholders of LOI in favor of the Merger at any meetings (or in any
action by written consent) required by the Ohio General Corporation Law.
(l) Malpractice Insurance. On or before the Effective Time, all physicians
and employees of LOI must be covered by medical malpractice insurance and, if
required by SCN, medical malpractice tail insurance to cover prior occurrences
shall be procured by LOI.
(m) Distribution of Excluded Assets. Prior to the Effective Time, LOI
shall have distributed to the LOI Stockholder all of the assets listed on
Schedule 5(m), which constitute the entirety of the assets owned by LOI not
being acquired by SCN (the "Excluded Assets").
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<PAGE>
(n) Satisfaction of Indebtedness. Prior to the Effective Time, LOI 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 LOI
Stockholder. 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 LOI, 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 LOI, 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 LOI; nor (iv) any liability
based upon or arising out of any tortious or wrongful actions of LOI or any
Physician Owner, or any liability for the payment of any taxes imposed by law on
LOI arising from or by reason of the transactions contemplated by this
Agreement. LOI shall establish a reserve for income, excise or other taxes owed
by LOI through the Effective Time, including but not limited to any such taxes
to be paid upon the collection of any cash basis accounts receivable existing on
the books of LOI at the Effective Time.
(o) Conversion into Business Corporation. If required by the Ohio General
Corporation Law, prior to the Effective Time, the LOI Stockholder shall have
caused the conversion of LOI to an Ohio business corporation.
(p) Employee Benefit Plans. Prior to the Effective Time, all Employee
Benefit Plans shall be terminated in accordance with Applicable Law or
Orthopaedic Institute of Ohio, Inc. shall have taken whatever actions are
necessary to become the sponsor or any such plans.
(q) Securities Laws Compliance. The LOI Stockholder shall not 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) Filing Final Tax Returns/Payment of Applicable Taxes. The LOI
Stockholder shall cause to be filed all final tax returns for LOI and shall pay
any and all taxes owed or accrued up to and through the Effective Time.
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) LOI 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) LOI 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 LOI;
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<PAGE>
(v) SCN shall have received the resignations, effective as of the
Closing, of each director and officer of LOI 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 LOI and/or the LOI 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 LOI 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; 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 LOI. The obligation of LOI to consummate
the Merger is subject to satisfaction of the following conditions:
(i) This Agreement and the Merger shall have received the LOI director
and LOI Stockholder' approval required by the Ohio General Corporation Law.
(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 LOI.
LOI 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 LOI Stockholder or LOI. The LOI Stockholder or LOI, as
applicable, shall execute and deliver to SCN, prior to or at the Closing:
(i) Certified resolutions of the directors and stockholders of LOI
authorizing the execution of all documents and the consummation of all
transactions contemplated hereby;
(ii) The Ohio Certificate of Merger which shall be in the form
required by SCN's legal counsel;
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(iii) Stock Certificates representing ownership of all shares of LOI,
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 LOI and the LOI
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 LOI and the LOI Stockholder have been
performed or complied with and all conditions to closing have been complied
with;
(vi) An opinion from LOI'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 LOI at or prior to the Closing:
(i) Stock Certificates representing the SCN Shares being issued to the
LOI 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); and
(vi) Such other instruments as may be reasonably requested by LOI or
the LOI 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 LOI
at any time prior to the Effective Time (A) in the event LOI has breached
any representation, warranty, or covenant contained in this Agreement in
any material respect, SCN has notified LOI 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 October 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 5(j); or
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<PAGE>
(iii) LOI 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, LOI 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 October
31, 1997 by reason of the failure of any condition precedent under Section
6(b) hereof (unless the failure results primarily from LOI 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). Notwithstanding the foregoing, in the
event the Merger is not consummated (i) due to the fault of LOI or the LOI
Stockholder, or (ii) because SCN is dissatisfied with any disclosure made in the
Disclosure Schedule, then LOI agrees to reimburse SCN for SCN's out of pocket
expenses, including but not limited to professional fees, related to the
proposed transaction.
9. Indemnification.
(a) Indemnification by the LOI Stockholder. The LOI 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 LOI or the LOI Stockholder set forth in
this Agreement, from any loss, liability or expense resulting from or related to
LOI's operation of its business prior to the Effective Time and from any loss,
liability or expense resulting from or related to any actions, suits,
proceedings, hearings, and investigations set forth in Section 3(m) of the
Disclosure Schedule. The LOI Stockholder shall not be liable to SCN for any
claims against the LOI Stockholder under this Section 9(a) unless and until the
aggregate of all claims against the LOI 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 LOI Stockholder; Opportunity to Defend. SCN agrees to
give prompt notice to the LOI 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 LOI 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 LOI Stockholder's expense. The LOI 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 LOI 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 LOI 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 LOI 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 LOI 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 LOI 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.
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(e) Right of Setoff. In the event of any breach of warranty,
representation, covenant or agreement by LOI or the LOI 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 LOI Stockholder or Orthopedic Institute of Ohio, Inc. 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 LOI
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 LOI
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 LOI 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 LOI 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 and Section 10.4.4 of the Service Agreement.
10. Miscellaneous.
(a) Survival. The representations and warranties of the LOI Stockholder,
LOI and SCN contained in this Agreement and the indemnifications contained
herein shall survive the Closing. Except as set forth in the following sentence
of this Agreement, no claim for indemnification with respect to any alleged
misrepresentation or breach of warranty or covenant may be made after two (2)
years following the Closing Date. SCN shall be entitled to indemnification for
claims for breaches of representations, warranties or covenants relating to
matters involving the payment of taxes (including penalties and/or interest
thereon) or reimbursement of any amounts to Medicare, Medicaid or third-party
payors (including penalties and/or interest thereon) for so long as the
applicable statute of limitations for collection of such amounts continues. 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 LOI or the LOI Stockholder: Copy to:
James E. Bagenstose, M.D. James E. Meredith, Esq.
830 W. High Street, Suite 250 Cory, Meredith, Witter, Roush & Cheney
Lima, Ohio 45801 101 North Elizabeth Street, Suite 607
Lima, Ohio 45802
Facsimile: (419) 228-5319
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. 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.
(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 LOI stockholder approval will be subject to
the restrictions contained in the Ohio General Corporation Law. 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
- 21 -
<PAGE>
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 LOI 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.
* * * * *
- 22 -
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first above written.
SPECIALTY CARE NETWORK, INC.
By:
----------------------------
Title:
-------------------------
LIMA ORTHOPEDICS, INC.
By:
----------------------------
Title:
-------------------------
-------------------------------
James E. Bagenstose, M.D.
- 23 -
MEMBERSHIP INTEREST PURCHASE AGREEMENT
BY AND BETWEEN
JAMES E. BAGENSTOSE, M.D.,
DAVID L. DAVIS, M.D.,
JOHN J. DUGGAN, M.D.,
JAMES A. O'NEILL, M.D.,
DAVID B. STEINER, M.D.,
ROGER L. TERRY, M.D.,
MICHAEL J. WIESER, M.D.
MARK G. MCDONALD, M.D.
AND
SPECIALTY CARE NETWORK, INC.
September 10, 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. Purchase and Sale of Membership Interests...........................- 3 -
(a) Basic Transaction.........................................- 3 -
(b) Payment of Purchase Price.................................- 3 -
(c) The Closing...............................................- 3 -
(d) Deliveries at the Closing.................................- 3 -
3. Representations and Warranties Concerning the Transaction...........- 3 -
(a) Representations and Warranties of the Sellers.............- 3 -
(b) Representations and Warranties of the Buyer...............- 4 -
4. Representations and Warranties Concerning the Company...............- 5 -
(a) Organization, Qualification, and Corporate Power..........- 5 -
(b) Capitalization............................................- 5 -
(c) Noncontravention..........................................- 5 -
(d) Brokers' Fees.............................................- 5 -
(e) Title to Assets...........................................- 6 -
(f) Financial Statements......................................- 6 -
(g) Events Subsequent to Most Recent Fiscal Year End..........- 6 -
(h) Undisclosed Liabilities...................................- 7 -
(i) Legal Compliance..........................................- 7 -
(j) Tax Matters...............................................- 8 -
(k) Real Property.............................................- 8 -
(l) Tangible Assets..........................................- 10 -
(m) Contracts................................................- 10 -
(n) Powers of Attorney.......................................- 11 -
(o) Insurance................................................- 11 -
(p) Litigation...............................................- 12 -
(q) Guaranties...............................................- 12 -
(r) Environment, Health, and Safety..........................- 12 -
(s) Disclosure...............................................- 12 -
5. Pre-Closing Covenants..............................................- 12 -
(a) General..................................................- 12 -
(b) Notices and Consents.....................................- 13 -
(c) Operation of Business....................................- 13 -
(d) Preservation of Business.................................- 13 -
(e) Full Access..............................................- 13 -
(f) Notice of Developments...................................- 13 -
(g) Exclusivity..............................................- 13 -
6. Post-Closing Covenants.............................................- 13 -
(a) General..................................................- 13 -
(b) Litigation Support.......................................- 13 -
(c) Transition...............................................- 14 -
7. Conditions Precedent to Obligation to Close........................- 14 -
i
<PAGE>
Page
----
(a) Conditions to Obligation of the Buyer....................- 14 -
(b) Conditions to Obligation of the Sellers..................- 14 -
8. Deliveries at Closing..............................................- 15 -
9. Remedies for Breaches of This Agreement............................- 15 -
(a) Survival of Representations and Warranties...............- 15 -
(b) Indemnification Provisions for Benefit of the Buyer......- 16 -
(c) Matters Involving Third Parties..........................- 16 -
(d) Determination of Adverse Consequences....................- 16 -
(e) Recoupment Under Contingent Consideration................- 16 -
(f) Other Indemnification Provisions.........................- 17 -
10. Termination.......................................................- 17 -
(a) Termination of Agreement.................................- 17 -
(b) Effect of Termination....................................- 17 -
11. Miscellaneous.....................................................- 17 -
(a) Press Releases and Public Announcements..................- 17 -
(b) No Third-Party Beneficiaries.............................- 17 -
(c) Entire Agreement.........................................- 18 -
(d) Succession and Assignment................................- 18 -
(e) Counterparts.............................................- 18 -
(f) Headings.................................................- 18 -
(g) Notices..................................................- 18 -
(h) Governing Law............................................- 18 -
(i) Amendments and Waivers...................................- 19 -
(j) Severability.............................................- 19 -
(k) Expenses.................................................- 19 -
(l) Construction.............................................- 19 -
(m) Incorporation of Exhibits and Schedules..................- 19 -
(n) Specific Performance.....................................- 19 -
ii
<PAGE>
MEMBERSHIP INTEREST PURCHASE AGREEMENT
THIS MEMBERSHIP INTEREST PURCHASE AGREEMENT, dated as of September 10,
1997, by and between SPECIALTY CARE NETWORK, INC., a Delaware corporation
("Buyer") and JAMES E. BAGENSTOSE, M.D., DAVID L. DAVIS, M.D., JOHN J. DUGGAN,
M.D., JAMES A. O'NEILL, M.D., DAVID B. STEINER, M.D., ROGER L. TERRY, M.D.,
MICHAEL J. WIESER, M.D., and MARK G. MCDONALD, M.D., residents of the State of
Ohio (the "Sellers").
W I T N E S S E T H:
WHEREAS, the Sellers own all of the membership interests in West Central
Ohio Group, Ltd., an Ohio limited liability company (the "Company"); and
WHEREAS, the Sellers desires to sell and Buyer desires to purchase one-half
(1/2) of the Sellers membership interests (the "Membership Interests") on the
terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants, representations,
warranties and promises herein contained, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. Definitions. The following terms, as used herein, have the following
meanings:
"Adverse Consequences" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, Liabilities, obligations, Taxes, liens, losses, expenses, and
fees, including court costs and attorneys' fees and expenses.
"Affiliate" has the meaning set forth in Rule 12-2 of the regulations
promulgated under the Securities Exchange Act.
"Applicable Rate" means the corporate base rate of interest announced from
time to time by NationsBank, N.A., Nashville, Tennessee plus two percent (2%).
"Basis" means any past or present fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction that forms or could form the basis for any
specified consequence.
"Buyer" has the meaning set forth in the preface above.
"Closing" has the meaning set forth in Section 2(c) below.
"Closing Date" has the meaning set forth in Section 2(c) below.
"Code" means the Internal Revenue Code of 1986, as amended.
"Contingent Consideration" has the meaning set forth in Section 2(b) below.
"Company" means West Central Ohio Group, Ltd., an Ohio limited liability
company.
- 1 -
<PAGE>
"Disclosure Schedule" has the meaning set forth in Section 4 below.
"Environmental, Health, and Safety Laws" means the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the Resource
Conservation and Recovery Act of 1976, and the Occupational Safety and Health
Act of 1970, each as amended, together with all other laws (including rules,
regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and
charges thereunder) of federal, state, local, and foreign governments (and all
agencies thereof) concerning pollution or protection of the environment, public
health and safety, or employee health and safety, 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.
"Extremely Hazardous Substance" has the meaning set forth in Section 302 of
the Emergency Planning and Community Right-to-Know Act of 1986, as amended.
"Financial Statement" has the meaning set forth in Section 4(f) below.
"GAAP" means United States generally accepted accounting principles as in
effect from time to time.
"Knowledge" means actual knowledge after reasonable investigation.
"Liability" means any liability (whether known or unknown, whether asserted
or unasserted, whether absolute or contingent, whether accrued or unaccrued,
whether liquidated or unliquidated, and whether due or to become due), including
any liability for Taxes.
"Membership Interests" means one-half (1/2) of the issued and outstanding
membership interests of the Company.
"Most Recent Balance Sheet" means the balance sheet contained within the
Most Recent Financial Statements.
"Most Recent Financial Statements" has the meaning set forth in Section
4(f) below.
"Most Recent Fiscal Month End" has the meaning set forth in Section 4(f)
below.
"Most Recent Fiscal Year End" has the meaning set forth in Section 4(f)
below.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice.
"Party" has the meaning set forth in the preface above.
"Person" means an individual, a partnership, a corporation, an association,
a joint stock company, a limited liability company, a trust, a joint venture, an
unincorporated organization, or a governmental entity (or any department,
agency, or political subdivision thereof).
"Purchase Price" has the meaning set forth in Section 2(b) below.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
- 2 -
<PAGE>
"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, (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.
"Sellers" has the meaning set forth in the preface above.
"Tax" means any federal, state, local, or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Code Sec. 59A), customs
duties, capital stock, franchise, profits, withholding, social security (or
similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Third Party Claim" has the meaning set forth in Section 9(c) below.
2. Purchase and Sale of Membership Interests.
(a) Basic Transaction. On and subject to the terms and conditions of this
Agreement, the Buyer agrees to purchase from the Sellers, and the Sellers agree
to sell to the Buyer, the Membership Interests for a price (the "Purchase
Price") equal to the sum of (i) Three Hundred Thirty Thousand Four Hundred
Eighty-Six and no/100 Dollars ($330,486.00) and (ii) the Contingent
Consideration, payable as set forth in Section 2(b).
(b) Payment of Purchase Price. The Buyer shall pay or satisfy Four Hundred
Thousand and no/100 Dollars ($400,000.00) of the Purchase Price in cash by the
Buyer's wire transfer of readily available United States funds to the Sellers at
the Closing. The remaining balance of the purchase price (the "Contingent
Consideration") shall be paid as follows: the Buyer shall pay to the Sellers an
amount equal to twenty-five percent (25%) of the Company's first Six Million and
no/100 Dollars ($6,000,000.00) of net income after the Closing Date as
determined in accordance with GAAP. SCN shall pay such amount within sixty (60)
days of the close of each fiscal year. Notwithstanding the foregoing, any and
all obligations to pay the Contingent Consideration will terminate upon the
earlier of (i) payment of One Million Five Hundred Thousand and no/100 Dollars
($1,500,000.00) of Contingent Consideration or (ii) the fifth (5th) anniversary
of the Closing Date.
(c) The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Cory, Meredith,
Witter, Roush & Cheney in Lima, Ohio, 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 Buyer and the Sellers may mutually determine
(the "Closing Date").
(d) Deliveries at the Closing. At the Closing, (i) the Buyer will deliver
to the Sellers the various instruments and documents referred to in Section 8(a)
below, (ii) the Sellers will deliver to the Buyer the various instruments and
documents referred to in Section 8(b) below.
3. Representations and Warranties Concerning the Transaction.
(a) Representations and Warranties of the Sellers. The Sellers represent
and warrant to the Buyer that the statements contained in this Section 3(a) 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
- 3 -
<PAGE>
of this Agreement throughout this Section 3(a)) with respect to himself,
except as set forth in the disclosure schedule accompanying this Agreement (the
"Disclosure Schedule""). The Disclosure Schedule shall be satisfactory to the
Buyer and its counsel and will be arranged in paragraphs corresponding to the
lettered and numbered paragraphs contained in this Section 3(a).
(i) Authorization of Transaction. The Sellers have full power and
authority to execute and deliver this Agreement and to perform their
obligations hereunder. This Agreement constitutes the valid and legally
binding obligation of the Sellers, enforceable in accordance with its terms
and conditions. The Sellers need not give any notice to, make any filing
with, or obtain any authorization, consent, or approval of any government
or governmental agency in order to consummate the transactions contemplated
by this Agreement.
(ii) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby,
will (A) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which the Sellers are subject
or (B) 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 the
Sellers are a party or by which they are bound or to which any of their
assets are subject.
(iii) Brokers' Fees. The Sellers have no 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 the Buyer could
become liable or obligated.
(iv) Membership Interests. The Sellers own beneficially all of the
Membership Interests free and clear of any restrictions on transfer (other
than any restrictions under the Securities Act and state securities laws),
Taxes, Security Interests, options, warrants, purchase rights, contracts,
commitments, equities, claims, and demands. The Sellers are not a party to
any option, warrant, purchase right, or other contract or commitment that
could require the Sellers to sell, transfer, or otherwise dispose of any
membership interests of the Company (other than this Agreement). The
Sellers are not a party to any voting trust, proxy, or other agreement or
understanding with respect to the voting of any Membership Interests.
(b) Representations and Warranties of the Buyer. The Buyer represents and
warrants to the Sellers that the statements contained in this Section 3(b) 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(b)), except as set forth in the Disclosure Schedule.
(i) Organization of the Buyer. The Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of the
State of Delaware.
(ii) Authorization of Transaction. The Buyer has full power and
authority (including 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 the
Buyer, enforceable in accordance with its terms and conditions subject to
applicable bankruptcy, moratorium, insolvency and other laws affecting the
rights of creditors and general equity principals. The Buyer need not give
any notice to, make any filing with, or obtain any authorization, consent,
or approval of any government or governmental agency in order to consummate
the transactions contemplated by this Agreement.
(iii) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby,
will (A) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any
government, governmental
- 4 -
<PAGE>
agency, or court to which the Buyer is subject or any provision of its
charter or bylaws or (B) 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 the Buyer is a party or by which it is bound or to which any of
its assets is subject.
(iv) Brokers' Fees. The Buyer has no 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 the Sellers could
become liable or obligated.
(v) Investment. The Buyer is not acquiring the Membership Interests
with a view to or for sale in connection with any distribution thereof
within the meaning of the Securities Act.
4. Representations and Warranties Concerning the Company. The Sellers
represent and warrant to the Buyer 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. Nothing in the
Disclosure Schedule shall be deemed adequate to disclose an exception to a
representation or warranty made herein, however, unless the Disclosure Schedule
identifies the exception with reasonable particularity and describes the
relevant facts in reasonable detail. The Disclosure Schedule will be arranged in
paragraphs corresponding to the lettered and numbered paragraphs contained in
this Section 4.
(a) Organization, Qualification, and Corporate Power. The Company is a
limited liability company duly organized, validly existing, and in good standing
under the laws of the State of Ohio. The Company is duly authorized to conduct
business and is in good standing under the laws of each jurisdiction where such
qualification is required. The Company has full power and authority and all
licenses, permits, and authorizations necessary to carry on the businesses in
which it is engaged and to own and use the properties owned and used by it.
Section 4(a) of the Disclosure Schedule lists the members and officers of the
Company. The Sellers have delivered to the Buyer correct and complete copies of
the articles and operating agreement of the Company (as amended to date). The
minute books (containing the records of meetings of the members and any
committees of the members), and the record books of the Company are correct and
complete. The Company is not default under or in violation of any provision of
its articles or operating agreement.
(b) Capitalization. All of the issued and outstanding membership interests
of the Company have been duly authorized, fully paid, and are held of record by
the Sellers. Except as specifically provided in the Operating Agreement there
are no outstanding or authorized options, warrants, purchase rights,
subscription rights, conversion rights, exchange rights, or other contracts or
commitments that could require the Company to issue, sell, or otherwise cause to
become outstanding any additional membership interests. There are no outstanding
or authorized profit participation or similar rights with respect to the
Company. There are no voting trusts, proxies, or other agreements or
understandings with respect to the voting of the membership interests of the
Company.
(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, or court to which the Company is subject or any provision
of the articles or operating agreement of the Company 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 the Company 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). The Company does not need to give any
notice to,
- 5 -
<PAGE>
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. The Company 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.
(e) Title to Assets. Except as set forth in Section 3(e) of the Disclosure
Schedule, the Company has good and marketable title to, or a valid leasehold
interest in, the properties and assets it uses, located on its premises, or
shown on the Most Recent Balance Sheet or acquired after the date thereof, free
and clear of all Security Interests, except for properties and assets disposed
of in the Ordinary Course of Business since the date of the Most Recent Balance
Sheet.
(f) Financial Statements. Schedule 4(f) of the Disclosure Schedule includes
the following financial statements for the Company (collectively the "Financial
Statements"): (i) unaudited balance sheet and statement of income, changes in
members' equity, and cash flow as of and for the fiscal years ended December 31,
1996 (the "Most Recent Fiscal Year End"); and (ii) unaudited balance sheet and
statement of income, changes in stockholders' equity, and cash flow (the "Most
Recent Financial Statements") as of and for the six (6) months ended June 30,
1997 (the "Most Recent Fiscal Month End"). The Financial Statements (including
the notes thereto) have been prepared on a consistent basis throughout the
periods covered thereby, present fairly the financial condition of the Company
as of such dates and the results of operations of the Company for such periods,
are correct and complete, and are consistent with the books and records of the
Company.
(g) Events Subsequent to Most Recent Fiscal Year End. Since the Most Recent
Fiscal Year End, there has not been any adverse change in the business,
financial condition, operations, results of operations, or future prospects of
the Company. Without limiting the generality of the foregoing, since that date:
(i) the Company has not sold, leased, transferred, or assigned any of
its assets, tangible or intangible, other than for a fair consideration in
the Ordinary Course of Business;
(ii) the Company has not entered into any agreement, contract, lease,
or license (or series of related agreements, contracts, leases, and
licenses) either involving more than $25,000.00 or outside the Ordinary
Course of Business;
(iii) the Company has not accelerated, terminated, modified, or
canceled any agreement, contract, lease, or license (or series of related
agreements, contracts, leases, and licenses) involving more than $25,000.00
to which it is a party or by which it is bound;
(iv) except as set forth in Section 4(g) of the Disclosure Schedule,
the Company has not imposed any Security Interest upon any of its assets,
tangible or intangible;
(v) the Company has not made any capital expenditure (or series of
related capital expenditures) either involving more than $25,000.00 or
outside the Ordinary Course of Business;
(vi) the Company has not made any capital investment in, any loan to,
or any acquisition of the securities or assets of, any other Person (or
series of related capital investments, loans, and acquisitions) either
involving more than $25,000.00 or outside the Ordinary Course of Business;
(vii) the Company has not issued any note, bond, or other debt
security or created, incurred, assumed, or guaranteed any indebtedness for
borrowed money or a capitalized lease obligation;
- 6 -
<PAGE>
(viii) the Company has not delayed or postponed the payment of
accounts payable and other Liabilities outside the Ordinary Course of
Business;
(ix) the Company has not canceled, compromised, waived, or released
any right or claim (or series of related rights and claims) either
involving more than $25,000.00 or outside the Ordinary Course of Business;
(x) there has been no change made or authorized in the articles or
operating agreement of the Company;
(xi) the Company has not issued, sold, or otherwise disposed of any of
its membership interests, or granted any options, warrants, or other rights
to purchase or obtain (including upon conversion, exchange, or exercise)
any of its membership interests;
(xii) the Company has not declared, set aside, or paid any
distribution with respect to its membership interests (whether in cash or
in kind) or redeemed, purchased, or otherwise acquired any of its
membership interests;
(xiii) the Company has not experienced any damage, destruction, or
loss (whether or not covered by insurance) to its property;
(xiv) the Company has not made any loan to, or entered into any other
transaction with, any of its members, officers, and employees outside the
Ordinary Course of Business;
(xv) the Company has not entered into any employment contract or
collective bargaining agreement, written or oral, or modified the terms of
any existing such contract or agreement;
(xvi) the Company has not granted any increase in the base
compensation of any of its members, officers, and employees outside the
Ordinary Course of Business;
(xvii) the Company has not adopted, amended, modified, or terminated
any bonus, profit-sharing, incentive, severance, or other plan, contract,
or commitment for the benefit of any of its members, officers, and
employees (or taken any such action with respect to any other employee
benefit plan);
(xviii) the Company has not made any other change in employment terms
for any of its members, officers, and employees outside the Ordinary Course
of Business;
(xix) the Company has not made or pledged to make any charitable or
other capital contribution outside the Ordinary Course of Business;
(xx) there has not been any other occurrence, event, incident, action,
failure to act, or transaction outside the Ordinary Course of Business
involving the Company; and
(xxi) the Company has not committed to any of the foregoing.
(h) Undisclosed Liabilities. The Company does not have any Liability (and
there is no Basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand against either of them giving
rise to any Liability), except for (i) Liabilities set forth on the face of the
Most Recent Balance Sheet (rather than in any notes thereto) and (ii)
Liabilities which have arisen after the Most Recent Fiscal Month End 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, malpractice, infringement, or violation of law).
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(i) Legal Compliance. The Company and its predecessors and Affiliates has
complied with all applicable laws (including rules, regulations, codes, plans,
injunctions, judgments, orders, decrees, rulings, and charges thereunder) of
federal, state, local, and foreign governments (and all agencies thereof), and
no action, suit, proceeding, hearing, investigation, charge, complaint, claim,
demand, or notice has been filed or commenced against any of them alleging any
failure so to comply.
(j) Tax Matters.
(i) The Company has filed all Tax Returns that it was required to
file. All such Tax Returns were correct and complete in all respects. All
Taxes owed by the Company (whether or not shown on any Tax Return) have
been paid. The Company is not currently the beneficiary of any extension of
time within which to file any Tax Return. No claim has ever been made by an
authority in a jurisdiction where the Company does not file Tax Returns
that it is or may be subject to taxation by that jurisdiction. There are no
Security Interests on any of the assets of the Company that arose in
connection with any failure (or alleged failure) to pay any Tax.
(ii) The Company has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder, or other third party.
(iii) Neither the Sellers nor any officer (or employee responsible for
Tax matters) of the Company expects any authority to assess any additional
Taxes for any period for which Tax Returns have been filed. There is no
dispute or claim concerning any Tax Liability of the Company either (A)
claimed or raised by any authority in writing or (B) as to which the
Sellers or the officers (and employees responsible for Tax matters) of the
Company has Knowledge based upon personal contact with any agent of such
authority. Section 4(j) of the Disclosure Schedule lists all federal,
state, local, and foreign income Tax Returns filed with respect to the
Company for taxable periods ended on or after December 31, 1992, indicates
those Tax Returns that have been audited, and indicates those Tax Returns
that currently are the subject of audit. The Sellers have delivered to the
Buyer correct and complete copies of all federal income Tax Returns,
examination reports, and statements of deficiencies assessed against or
agreed to by the Company since December 31, 1992.
(iv) the Company has not waived any statute of limitations in respect
of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency.
(v) The Company has not made any payments, is not obligated to make
any payments, or is a party to any agreement that under certain
circumstances could obligate it to make any payments that will not be
deductible under Code Section 280G. The Company has disclosed on its
federal income Tax Returns all positions taken therein that could give rise
to a substantial understatement of federal income Tax within the meaning of
Code Section 6662.
(k) Real Property.
(i) Section 4(k)(i) of the Disclosure Schedule lists and describes
briefly all real property that the Company owns. With respect to each such
parcel of owned real property:
(A) the identified owner has good and marketable title to the
parcel of real property, free and clear of any Security Interest,
easement, covenant, or other restriction, except for installments of
special assessments not yet delinquent and recorded easements,
covenants, and other restrictions which do not impair the current use,
occupancy, or value, or the marketability of title, of the property
subject thereto;
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(B) there are no pending or threatened condemnation proceedings,
lawsuits, or administrative actions relating to the property or other
matters affecting adversely the current use, occupancy, or value
thereof;
(C) the legal description for the parcel contained in the deed
thereof describes such parcel fully and adequately, the buildings and
improvements are located within the boundary lines of the described
parcels of land, are not in violation of applicable setback
requirements, zoning laws, and ordinances (and none of the properties
or buildings or improvements thereon are subject to "permitted
non-conforming use" or permitted non-conforming structure"
classifications), and do not encroach on any easement which may burden
the land, and the land does not serve any adjoining property for any
purpose inconsistent with the use of the land, and the property is not
located within any flood plain or subject to any similar type
restriction for which any permits or licenses necessary to the use
thereof have not been obtained;
(D) all facilities have received all approvals of governmental
authorities (including licenses and permits) required in connection
with the ownership or operation thereof and have been operated and
maintained in accordance with applicable laws, rules, and regulations;
(E) there are no leases, subleases, licenses, concessions, or
other agreements, written or oral, granting to any party or parties
the right of use or occupancy of any portion of the parcel of real
property;
(F) there are no outstanding options or rights of first refusal
to purchase the parcel of real property, or any portion thereof or
interest therein;
(G) there are no parties (other than the Company) in possession
of the parcel of real property, other than tenants under any leases
disclosed in Section 4(k)(i) of the Disclosure Schedule who are in
possession of space to which they are entitled;
(H) all facilities located on the parcel of real property are
supplied with utilities and other services necessary for the operation
of such facilities, including gas, electricity, water, telephone, and
storm sewer, all of which services are adequate in accordance with all
applicable laws, ordinances, rules, and regulations and are provided
via public roads or via permanent, irrevocable, appurtenant easements
benefitting the parcel of real property; and
(I) each parcel of real property abuts on and has direct
vehicular access to a public road, or has access to a public road via
a permanent, irrevocable, appurtenant easement benefitting the parcel
of real property, and access to the property is provided by paved
public right-of-way with adequate curb cuts available.
(ii) Section 4(k)(ii) of the Disclosure Schedule lists and
describes briefly all real property leased or subleased to the Company.
The Sellers have delivered to the Buyer correct and complete copies of
the leases and subleases listed in Section 4(k)(ii) of the Disclosure
Schedule (as amended to date). With respect to each lease and sublease
listed in Section 4(k)(ii) of the Disclosure Schedule:
(A) the lease or sublease is legal, valid, binding,
enforceable, and in full force and effect;
(B) the lease or sublease will continue to be legal, valid,
binding, enforceable, and in full force and effect on identical
terms following the consummation of the transactions contemplated
hereby;
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<PAGE>
(C) no party to the lease or sublease 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 thereunder;
(D) no party to the lease or sublease has repudiated any
provision thereof;
(E) there are no disputes, oral agreements, or forbearance
programs in effect as to the lease or sublease;
(F) with respect to each sublease, the representations and
warranties set forth in subsections (A) through (E) above are
true and correct with respect to the underlying lease;
(G) the Company has not assigned, transferred, conveyed,
mortgaged, deeded in trust, or encumbered any interest in the
leasehold or subleasehold;
(H) all facilities leased or subleased thereunder have
received all approvals of governmental authorities (including
licenses and permits) required in connection with the operation
thereof and have been operated and maintained in accordance with
applicable laws, rules, and regulations;
(I) all facilities leased or subleased thereunder are
supplied with utilities and other services necessary for the
operation of said facilities; and
(J) the owner of the facility leased or subleased has good
and marketable title to the parcel of real property, free and
clear of any Security Interest, easement, covenant, or other
restriction, except for installments of special easements not yet
delinquent and recorded easements, covenants, and other
restrictions which do not impair the current use, occupancy, or
value, or the marketability of title, of the property subject
thereto.
(l) Tangible Assets. The Company owns or leases all buildings, machinery,
equipment, and other tangible assets necessary for the conduct of its businesses
as presently conducted. Each such tangible asset is free from defects (patent
and latent), has been maintained in accordance with normal industry practice, is
in good operating condition and repair (subject to normal wear and tear), and is
suitable for the purposes for which it presently is used.
(m) Contracts. Section 4(m) of the Disclosure Schedule lists the following
contracts and other agreements to which the Company is a party:
(i) any agreement (or group of related agreements) for the lease of
personal property to or from any Person providing for lease payments in
excess of $25,000.00 per annum;
(ii) any agreement (or group of related agreements) for the purchase
or sale of raw materials, commodities, supplies, products, or other
personal property, or for the furnishing or receipt of services, the
performance of which will extend over a period of more than one year,
result in a loss to the Company, or involve consideration in excess of
$25,000.00;
(iii) any agreement concerning a partnership or joint venture;
(iv) any agreement (or group of related agreements) under which it has
created, incurred, assumed, or guaranteed any indebtedness for borrowed
money, or any capitalized lease obligation, in excess of $25,000.00 or
under which it has imposed a Security Interest on any of its assets,
tangible or intangible;
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<PAGE>
(v) any agreement concerning confidentiality or noncompetition;
(vi) any agreement with either the Sellers or their Affiliates (other
than the Company);
(vii) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other plan or
arrangement for the benefit of its current or former members, officers, and
employees;
(viii) any collective bargaining agreement;
(ix) any agreement for the employment of any individual on a
full-time, part-time, consulting, or other basis providing annual
compensation in excess of $25,000.00 or providing severance benefits;
(x) any agreement under which it has advanced or loaned any amount to
any of its members, officers, and employees outside the Ordinary Course of
Business;
(xi) any agreement under which the consequences of a default or
termination could have an adverse effect on the business, financial
condition, operations, results of operations, or future prospects of the
Company; or
(xii) any other agreement (or group of related agreements) the
performance of which involves consideration in excess of $25,000.00.
The Sellers have delivered to the Buyer a correct and complete copy of each
written agreement listed in Section 4(m) of the Disclosure Schedule (as amended
to date) and a written summary setting forth the terms and conditions of each
oral agreement referred to in Section 4(m) of the Disclosure Schedule. With
respect to each such agreement: (1) the agreement is legal, valid, binding,
enforceable, and in full force and effect; (2) the agreement will continue to be
legal, valid, binding, enforceable, and in full force and effect on identical
terms following the consummation of the transactions contemplated hereby; (3) 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 (4) no party has
repudiated any provision of the agreement.
(n) Powers of Attorney. There are no outstanding powers of attorney
executed on behalf of the Company.
(o) Insurance. Section 4(o) of the Disclosure Schedule sets forth the
following information with respect to each insurance policy (including policies
providing property, casualty, liability, and workers' compensation coverage and
bond and surety arrangements) to which the Company has been a party, a named
insured, or otherwise the beneficiary of coverage at any time within the past
five (5) years:
(i) the name, address, and telephone number of the agent;
(ii) the name of the insurer, the name of the policyholder, and the
name of each covered insured;
(iii) the policy number and the period of coverage;
(iv) the scope (including an indication of whether the coverage was on
a claims made, occurrence, or other basis) and amount (including a
description of how deductibles and ceilings are calculated and operate) of
coverage; and
(v) a description of any retroactive premium adjustments or other
loss-sharing arrangements.
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<PAGE>
With respect to each such insurance policy: (A) the policy is legal, valid,
binding, enforceable, and in full force and effect; (B) the policy will continue
to be legal, valid, binding, enforceable, and in full force and effect on
identical terms following the consummation of the transactions contemplated
hereby; (C) neither the Company nor any other party to the policy is in breach
or default (including with respect to the payment of premiums or the giving of
notices), and no event has occurred which, with notice or the lapse of time,
would constitute such a breach or default, or permit termination, modification,
or acceleration, under the policy; and (D) no party to the policy has repudiated
any provision thereof. The Company has been covered during the past five (5)
years by insurance in scope and amount customary and reasonable for the
businesses in which it has engaged during the aforementioned period. Section
4(o) of the Disclosure Schedule describes any self-insurance arrangements
affecting the Company.
(p) Litigation. Section 4(p) of the Disclosure Schedule sets forth each
instance in which the Company (i) is subject to any outstanding injunction,
judgment, order, decree, ruling, or charge or (ii) is a party or is threatened
to be made a party to any action, suit, proceeding, hearing, or investigation
of, in, or before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction or before any arbitrator. None of
the actions, suits, proceedings, hearings, and investigations set forth in
Section 4(p) of the Disclosure Schedule could result in any material adverse
change in the business, financial condition, operations, results of operations,
or future prospects of the Company. Neither the Sellers nor the officers (and
employees with responsibility for litigation matters) of the Company has any
reason to believe that any such action, suit, proceeding, hearing, or
investigation may be brought or threatened against the Company.
(q) Guaranties. The Company is not a guarantor or otherwise liable for any
Liability or obligation (including indebtedness) of any other Person.
(r) Environment, Health, and Safety.
(i) The Company and its predecessors and Affiliates has complied with
all Environmental, Health, and Safety Laws, and no action, suit,
proceeding, hearing, investigation, charge, complaint, claim, demand, or
notice has been filed or commenced against any of them alleging any failure
so to comply. Without limiting the generality of the preceding sentence,
the Company and its predecessors and Affiliates has obtained and been in
compliance with all of the terms and conditions of all permits, licenses,
and other authorizations which are required under, and has complied with
all other limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules, and timetables which are contained
in, all Environmental, Health, and Safety Laws.
(ii) The Company does not have any Liability (and none of the Company
and its predecessors and Affiliates has handled or disposed of any
substance, arranged for the disposal of any substance, exposed any employee
or other individual to any substance or condition, or owned or operated any
property or facility in any manner that could form the Basis for any
present or future action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand against the Company giving rise to any
Liability) for damage to any site, location, or body of water (surface or
subsurface), for any illness of or personal injury to any employee or other
individual, or for any reason under any Environmental, Health, and Safety
Law.
(iii) All properties and equipment used in the business of the Company
and its predecessors and Affiliates have been free of asbestos, PCB's,
methylene chloride, trichloroethylene, 1,2-trans-dichloroethylene, dioxins,
dibenzofurans, and Extremely Hazardous Substances.
(s) Disclosure. The representations and warranties contained in this
Section 4 do not contain any untrue statement of a fact or omit to state any
fact necessary in order to make the statements and information contained in this
Section 4 not misleading.
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5. Pre-Closing Covenants. The Parties agree as follows with respect to the
period between the execution of this Agreement and the Closing.
(a) General. Each of the Parties will use his or its 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, but not waiver, of the closing conditions set forth in Section 7
below).
(b) Notices and Consents. The Sellers will cause the Company to give any
notices to third parties, and will cause the Company to use its best efforts to
obtain any third-party consents, that may be required by law or the terms of any
contract to which the Sellers or the Company may be subject or that the Buyer
may request in connection with the transaction contemplated by this Agreement.
Each of the Parties will (and the Sellers will cause the Company to) give any
notices to, make any filings with, and use its best efforts to obtain any
authorizations, consents, and approvals of governments and governmental agencies
required to consummate the transaction contemplated by this Agreement.
(c) Operation of Business. The Sellers will not cause or permit the Company
to 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, the Sellers will not cause or permit the Company to (i) declare, set
aside, or make any distribution with respect to its membership interests or
redeem, purchase, or otherwise acquire any of its membership interests or (ii)
otherwise engage in any practice, take any action, or enter into any transaction
of the sort described in Section 4(g) above.
(d) Preservation of Business. The Sellers will cause the Company and to
keep its business and properties substantially intact, including their present
operations, physical facilities, working conditions, and relationships with
lessors, licensors, suppliers, patients, and employees.
(e) Full Access. The Sellers will permit, and the Sellers will cause the
Company to permit, representatives of the Buyer to have full access at all
reasonable times, and in a manner so as not to interfere with the normal
business operations of the Company, to all premises, properties, personnel,
books, records (including Tax records), contracts, and documents of or
pertaining to the Company.
(f) Notice of Developments. The Sellers will give prompt written notice to
the Buyer of any material adverse development causing a breach of any of the
representations and warranties in Section 4 above. Each Party will give prompt
written notice to the others of any material adverse development causing a
breach of any of his or its own representations and warranties in Section 3
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.
(g) Exclusivity. The Sellers will not (and the Sellers will not cause or
permit the Company to) (i) solicit, initiate, or encourage the submission of any
proposal or offer from any Person relating to the acquisition of any membership
interests or any substantial portion of the assets of, the Company (including
any acquisition structured as a merger or consolidation) or (ii) participate in
any discussions or negotiations regarding, furnish any information with respect
to, assist or participate in, or facilitate in any other manner any effort or
attempt by any Person to do or seek any of the foregoing. The Sellers will not
vote their membership interests in favor of any such acquisition structured as a
merger or consolidation. The Sellers will notify the Buyer immediately if any
Person makes any proposal, offer, inquiry, or contact with respect to any of the
foregoing.
6. Post-Closing Covenants. The Parties agree as follows with respect to the
period following the Closing.
(a) General. In case at any time after the Closing any further action is
necessary to carry out the purposes of this Agreement, each of the Parties will
take such further action (including the execution and delivery of such further
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instruments and documents) as any other Party may request, all at the sole cost
and expense of the requesting Party (unless the requesting Party is entitled to
indemnification therefor under Section 9 below). The Sellers acknowledge and
agree that from and after the Closing the Buyer will be entitled to access to
all documents, books, records (including Tax records), agreements, and financial
data of any sort relating to the Company.
(b) Litigation Support. In the event and for so long as any Party actively
is contesting or defending against any action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand in connection with (i) any
transaction contemplated under this Agreement or (ii) any fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction on or prior to the Closing Date
involving the Company, each of the other Parties will cooperate with him or it
and his or its counsel in the contest or defense, make available their
personnel, and provide such testimony and access to their books and records as
shall be necessary in connection with the contest or defense, all at the sole
cost and expense of the contesting or defending Party (unless the contesting or
defending Party is entitled to indemnification therefor under Section 9 below).
(c) Transition. The Sellers will not take any action that is designed or
intended to have the effect of discouraging any lessor, licensor, customer,
supplier, or other business associate of the Company from maintaining the same
business relationships with the Company after the Closing as it maintained with
the Company prior to the Closing.
7. Conditions Precedent to Obligation to Close.
(a) Conditions to Obligation of the Buyer. The obligation of the Buyer to
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in Section 3(a) and
Section 4 above shall be true and correct in all material respects at and
as of the Closing Date;
(ii) the Sellers shall have performed and complied with all of their
covenants hereunder in all material respects through the Closing;
(iii) the Company shall have procured all of the third party consents
specified in Section 5(b) above.
(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, (C) affect adversely the right of
the Buyer to own the Membership Interests, or (D) affect adversely the
right of the Company to own its assets and to operate its businesses (and
no such injunction, judgment, order, decree, ruling, or charge shall be in
effect);
(v) the Sellers shall have delivered to the Buyer a certificate to the
effect that each of the conditions specified above in Section 7(a)(i)-(iv)
is satisfied in all respects;
(vi) the Buyer shall have obtained on terms and conditions
satisfactory to it all of the financing it needs in order to consummate the
transactions contemplated hereby; and
(vii) all actions to be taken by the Sellers in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be satisfactory in form and substance
to the Buyer.
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<PAGE>
The Buyer may waive any condition specified in this Section 7(a) if it executes
a writing so stating at or prior to the Closing.
(b) Conditions to Obligation of the Sellers. The obligation of the Sellers
to consummate the transactions to be performed by them in connection with the
Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in Section 3(b) above
shall be true and correct in all material respects at and as of the Closing
Date;
(ii) the Buyer shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(iii) 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 or (B) cause any of the transactions contemplated by this
Agreement to be rescinded following consummation (and no such injunction,
judgment, order, decree, ruling, or charge shall be in effect);
(iv) the Buyer shall have delivered to the Sellers a certificate to
the effect that each of the conditions specified above in Section
7(b)(i)-(iii) is satisfied in all respects;
(v) all actions to be taken by the Buyer in connection with
consummation of the transactions contemplated hereby and all certificates,
instruments, and other documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and substance
to the Sellers.
The Sellers may waive any condition specified in this Section 7(b) if they
execute a writing so stating at or prior to the Closing.
8. Deliveries at Closing.
(a) Documents to be Delivered by the Buyer. At the Closing, the Buyer shall
deliver the following instruments and documents to the Sellers or other
appropriate party:
(i) cash in the amount of Four Hundred Thousand and no/100 Dollars
($400,000.00) by wire transfer in readily available United States Funds;
(ii) the certificate described in Section 7(b)(iv) above; and
(iii) such other documents as the Sellers may reasonably request to
affect the transactions contemplated by this Agreement.
(b) Documents to be Delivered by the Sellers. At the Closing, the Sellers
shall deliver the following instruments and documents to the Sellers:
(i) a certificate of existence from the Ohio Secretary of State
evidencing the existence and good standing of the Company;
(ii) all consents necessary regarding the transaction contemplated by
this Agreement;
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(iii) an opinion of counsel to the Sellers in a form reasonably
satisfactory to the Buyer's counsel;
(iv) the Certificate described in Section 7(a)(v) above; and
(v) such other documents as the Buyer may reasonably request to affect
the transactions contemplated by this Agreement.
9. Remedies for Breaches of This Agreement.
(a) Survival of Representations and Warranties. All of the representations
and warranties of the Parties contained in this Agreement shall survive the
Closing hereunder (even if the damaged Party knew or had reason to know of any
misrepresentation or breach of warranty at the time of Closing) and continue in
full force and effect forever thereafter (subject to any applicable statutes of
limitations).
(b) Indemnification Provisions for Benefit of the Buyer. In the event the
Sellers breach (or in the event any third party alleges facts that, if true,
would mean the Sellers have breached) any of the representations, warranties,
and covenants contained herein and, provided that the Buyer makes a written
claim for indemnification against the Sellers pursuant to Section 9(c) below,
then the Sellers agree to indemnify the Buyer from and against the entirety of
any Adverse Consequences the Buyer may suffer through and after the date of the
claim for indemnification (including any Adverse Consequences the Buyer may
suffer after the end of any applicable survival period) resulting from, arising
out of, relating to, in the nature of, or caused by the breach (or the alleged
breach), or otherwise.
(c) Matters Involving Third Parties.
(i) If any third party shall notify the Buyer with respect to any
matter (a "Third Party Claim") which may give rise to a claim for
indemnification against the Sellers under this Section 9, then the Buyer
shall promptly notify the Sellers thereof in writing; provided, however,
that no delay on the part of the Buyer in notifying the Sellers shall
relieve the Sellers from any obligation hereunder unless (and then solely
to the extent) the Sellers are thereby prejudiced.
(ii) The Sellers will have the right to defend the Buyer against the
Third Party Claim with counsel of their choice satisfactory to the Buyer so
long as (A) the Sellers notify the Buyer in writing within 15 days after
the Buyer has given notice of the Third Party Claim that the Sellers will
indemnify the Buyer from and against the entirety of any Adverse
Consequences the Buyer may suffer resulting from, arising out of, relating
to, in the nature of, or caused by the Third Party Claim, (B) the Sellers
provide the Buyer with evidence acceptable to the Buyer that the Sellers
will have the financial resources to defend against the Third Party Claim
and fulfill their indemnification obligations hereunder, (C) the Third
Party Claim involves only money damages and does not seek an injunction or
other equitable relief, (D) settlement of, or an adverse judgment with
respect to, the Third Party Claim is not, in the good faith judgment of the
Buyer, likely to establish a precedential custom or practice adverse to the
continuing business interests of the Buyer, and (E) the Sellers conduct the
defense of the Third Party Claim actively and diligently.
(iii) So long as the Sellers are conducting the defense of the Third
Party Claim in accordance with Section 9(c)(ii) above, (A) the Buyer may
retain separate co-counsel at its sole cost and expense and participate in
the defense of the Third Party Claim, (B) the Buyer will not consent to the
entry of any judgment or enter into any settlement with respect to the
Third Party Claim without the prior written consent of the Sellers (not to
be withheld unreasonably), and (C) the Sellers will not consent to the
entry of any judgment or enter into any settlement with respect to the
Third Party Claim without the prior written consent of the Buyer.
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<PAGE>
(iv) In the event any of the conditions in Section 9(c)(ii) above is
or becomes unsatisfied, however, (A) the Buyer may defend against, and
consent to the entry of any judgment or enter into any settlement with
respect to, the Third Party Claim in any manner it may deem appropriate
(and the Buyer need not consult with, or obtain any consent from, the
Sellers in connection therewith), (B) the Sellers will reimburse the Buyer
promptly and periodically for the costs of defending against the Third
Party Claim (including attorneys' fees and expenses), and (C) the Sellers
will remain responsible for any Adverse Consequences the Buyer may suffer
resulting from, arising out of, relating to, in the nature of, or caused by
the Third Party Claim to the fullest extent provided in this Section 9.
(d) Determination of Adverse Consequences. The Parties shall take into
account the time cost of money (using the Applicable Rate as the discount rate)
in determining Adverse Consequences for purposes of this Section 9. All
indemnification payments under this Section 9 shall be deemed adjustments to the
Purchase Price.
(e) Recoupment Under Contingent Consideration. The Buyer shall have the
option of recouping all or any part of any Adverse Consequences it may suffer
(in lieu of seeking any indemnification to which it is entitled under this
Section 9) by notifying the Sellers that the Buyer is reducing the amount of
Contingent Consideration due and payable to the Sellers by the Buyer.
(f) Other Indemnification Provisions. The foregoing indemnification
provisions are in addition to, and not in derogation of, any statutory,
equitable, or common law remedy any Party may have for breach of representation,
warranty, or covenant. The Sellers hereby agree that they will not make any
claim for indemnification against the Company by reason of the fact that they
were a member, officer, employee, or agent of such entity or were serving at the
request of any such entity as a partner, trustee, director, officer, employee,
or agent of another entity (whether such claim is for judgments, damages,
penalties, fines, costs, amounts paid in settlement, losses, expenses, or
otherwise and whether such claim is pursuant to any statute, charter document,
bylaw, agreement, or otherwise) with respect to any action, suit, proceeding,
complaint, claim, or demand brought by the Buyer against the Sellers (whether
such action, suit, proceeding, complaint, claim, or demand is pursuant to this
Agreement, applicable law, or otherwise).
10. Termination.
(a) Termination of Agreement. Certain of the Parties may terminate this
Agreement as provided below:
(i) the Buyer and the Sellers may terminate this Agreement by mutual
written consent at any time prior to the Closing;
(ii) the Buyer may terminate this Agreement by giving written notice
to the Sellers at any time prior to the Closing (A) in the event any of the
Sellers has breached any material representation, warranty, or covenant
contained in this Agreement in any material respect, the Buyer has notified
the Sellers of the breach, and the breach has continued without cure for a
period of 10 days after the notice of breach or (B) if the Closing shall
not have occurred on or before October 31, 1997, by reason of the failure
of any condition precedent under Section 7(a) hereof (unless the failure
results primarily from the Buyer itself breaching any representation,
warranty, or covenant contained in this Agreement); and
(iii) the Sellers may terminate this Agreement by giving written
notice to the Buyer at any time prior to the Closing (A) in the event the
Buyer has breached any material representation, warranty, or covenant
contained in this Agreement in any material respect, any of the Sellers has
notified the Buyer of the breach, and the breach has continued without cure
for a period of 10 days after the notice of breach or (B) if the Closing
shall not have occurred on or before October 31, 1997, by reason of the
failure of any condition precedent under Section 7(b) hereof (unless the
failure results primarily from any of the Sellers himself breaching any
representation, warranty, or covenant contained in this Agreement).
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<PAGE>
(b) Effect of Termination. If any Party terminates this Agreement pursuant
to Section 10(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).
11. Miscellaneous.
(a) Press Releases and Public Announcements. No Party shall issue any press
release or make any public announcement relating to the subject matter of this
Agreement without the prior written approval of the Buyer and the Sellers;
provided, however, that any Party may make any public disclosure it believes in
good faith is required by applicable law or any listing or trading agreement
concerning its publicly-traded securities (in which case the disclosing Party
will use its best efforts to advise the other Parties prior to making the
disclosure).
(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 among the Parties and supersedes any
prior understandings, agreements, or representations by or among 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 his
or its rights, interests, or obligations hereunder without the prior written
approval of the Buyer and the Sellers; provided, however, that the Buyer may (i)
assign any or all of its rights and interests hereunder to one or more of its
Affiliates and (ii) designate one or more of its Affiliates to perform its
obligations hereunder (in any or all of which cases the Buyer nonetheless shall
remain responsible for the performance of all of its obligations hereunder).
(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 the Sellers: Copy to:
1220 Elm Street, Suite 110 James E. Meredith
Lima, Ohio 45804 Cory, Meredith, Witter, Roush & Cheney
Attention: David L. Davis, M.D. 101 North Elizabeth Street
Suite 607
Lima, Ohio 45802
If to the Buyer: Copy to:
Specialty Care Network, Inc. David T. Popwell, Esq.
44 Union Boulevard Baker, Donelson, Bearman & Caldwell
Suite 600 165 Madison Avenue, Suite 2000
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<PAGE>
Lakewood, Colorado 80228 Memphis, Tennessee 38103
Attention: Kerry Hicks
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 Parties
notice in the manner herein set forth.
(h) Governing Law. 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.
(i) Amendments and Waivers. No amendment of any provision of this Agreement
shall be valid unless the same shall be in writing and signed by the Buyer and
the Sellers. 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 his or its own costs and
expenses (including legal fees and expenses) incurred in connection with this
Agreement and the transactions contemplated hereby. The Sellers agree that the
Company has not borne nor will bear any of the Sellers' costs and expenses
(including any of their legal fees and expenses) in connection with this
Agreement or any of 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 requires otherwise. The
word "including" shall mean including without limitation. The Parties intend
that each representation, warranty, and covenant contained herein shall have
independent significance. If any Party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that there
exists another representation, warranty, or covenant relating to the same
subject matter (regardless of the relative levels of specificity) which the
Party has not breached shall not detract from or mitigate the fact that the
Party is in breach of the first representation, warranty, or covenant.
(m) Incorporation of Exhibits and Schedules. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
(n) Specific Performance. Each of the Parties acknowledges and agrees that
the other Parties would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each of the Parties agrees that
the other Parties shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof in any action instituted in any
court of the United States or any state thereof having jurisdiction over the
Parties and the matter, in addition to any other remedy to which they may be
entitled, at law or in equity.
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<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first above written.
BUYER:
SPECIALTY CARE NETWORK, INC.
By:
----------------------------------
Title:
-------------------------------
SELLER:
-------------------------------------
JAMES E. BAGENSTOSE, M.D.
-------------------------------------
DAVID L. DAVIS, M.D.,
-------------------------------------
JOHN J. DUGGAN, M.D.
-------------------------------------
JAMES A. O'NEILL, M.D.
-------------------------------------
DAVID B. STEINER, M.D.
-------------------------------------
ROGER L. TERRY, M.D.
-------------------------------------
MICHAEL J. WIESER, M.D.
-------------------------------------
MARK G. McDONALD
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